The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight: A summary of the news; some perspective on how the various nations of Europe see the Iraq crisis in various ways; a Paul Solman look at the enormous disappearance of value at AOL-Time Warner; a discussion of the president's and other approaches to reforming Medicare; and a Richard Rodriguez essay about war fever.

NEWS SUMMARY

JIM LEHRER: Europe showed growing signs of division today, over joining the U.S. in a possible war with Iraq. The Wall Street Journal and newspapers in Europe, published a column by the leaders of Britain, Denmark, Hungary, Italy, Poland, Portugal, Spain, and the Czech Republic. They warned against failing to confront Saddam Hussein and against letting the issue harm Europe's ties with the U.S. in Madrid, British Prime Minister Blair met with Spanish Prime Minister Aznar and underscored that position.

TONY BLAIR: There may be people who think it's somehow a good way of proceeding, that we drift apart. It isn't. The only people that will ever gain from America and Europe coming apart are the people who do not have the interests of either Europe or America truly at heart. That's... sometimes it's just important to go back to that fundamental truth and state it.

JIM LEHRER: France, Germany, and Russia have opposed U.S. military action and called for continued U.N. inspections. Today, the French foreign minister played down the newspaper column. He said, "We are not trying to set one Europe against another when everyone can see we are defending the same principles." And in Brussels, Belgium, the European parliament approved a resolution that said Iraq's response to inspections so far does not justify military action. Pres. Bush said today he welcomed the "statement of solidarity" by the eight European nations. He met with the Italian premier at the White House, and said the confrontation with Iraq must be resolved. He said he would give diplomacy weeks, not months. We'll have more on U.S.-European divisions on Iraq in a moment. The U.S. Senate Foreign Relations Committee stepped up the pressure today for answers on Iraq. Kwame Holman has our report.

KWAME HOLMAN: Deputy Sec. of State Richard Armitage and United Nations Amb. John Negroponte spent much of the day defending the administration's urgent tone on Iraq. Nebraska Republican Chuck Hagel asked if the U.S. would seek a new resolution of the United Nations Security Council specifically authorizing a strike on Iraq. In its first resolution, the Security Council authorized "serious consequences" if Iraq fails to disarm.

SEN. CHUCK HAGEL: What is the position of the United States government on a second resolution and what would be the prospects in your enlightened opinion of a second resolution?

RICHARD ARMITAGE: We find a second resolution desirable, but as you suggest, not absolutely necessary. Having said that, Sec. Powell will make his presentation on the 5th, and after that we'll kind of assess that tone and tenor of the discussions, we'll let this germinate a bit with Amb. Negroponte talking with his colleagues, and then we'll make a judgment.

SEN. CHUCK HAGEL: Do you think it's likely we'll see a second resolution proposed?

JOHN NEGROPONTE: I would not want to make that prediction at this point in time.

KWAME HOLMAN: Connecticut Democrat Christopher Dodd said the administration must provide more information to congress and the American people about the threat Iraq poses.

SEN. CHRISTOPHER DODD: For many of us up here, we have not yet seen the kind of data I think that's necessary.

RICHARD ARMITAGE: The sharing of the information is something that of course you have every right to demand.

SEN. CHRISTOPHER DODD: I'm just tired of having to hear sort of these speeches being given about this. And I'm one who supported this resolution, I'm not your opponent. But my people want to know why we're going to do this, other than sort of pep rally stuff. I want to know specifically and factually what we know. And I know my constituents do, and I know my colleagues do.

KWAME HOLMAN: The Foreign Relations Committee may seek a closed-door briefing from Sec. of State Colin Powell prior to his appearance at the U.N. next week.

JIM LEHRER: The chief U.N. weapons inspector, Hans Blix, said today Iraq still has not increased its cooperation. But in Iraq, a presidential adviser invited Blix and Mohamed ElBaradei, the chief nuclear inspector, to return to Baghdad for more talks on cooperation. He said they should visit before their next report to the U.N. on February 14. Also today, two more scientists refused to meet alone with inspectors. So far, 15 Iraqi experts have rejected the private interviews. In the war on terror, U.S. and Afghan authorities arrested three men in Kabul today. They were suspected of planning bomb attacks on U.S. Targets. In Germany, the U.S. Embassy in Berlin closed its consular section. Police had received warnings of possible attacks on U.S. And Israeli targets. And in Washington, the State Department added an Islamic group in Pakistan to a list of terrorist organizations. One of its leaders is suspected in the killing of Wall Street Journal reporter Daniel Pearl last year. The so-called "shoe-bomber" was sentenced to life in prison today by a federal judge in Boston. Richard Reid, a British citizen, had already pleaded guilty to trying to blow up a transatlantic flight in December of 2001, with a bomb in his sneakers. He admitted belonging to al-Qaida and prosecutors said he remained defiant.

MICHAEL SULLIVAN: In open court today, Richard Reid again pledged his continuing allegiance to Osama bin Laden and declared himself an enemy of our country. The only regret that Richard reed has ever expressed is for not having been sent to participate in the Sept. 11 attacks on the United States.

JIM LEHRER: After Reid spoke in court, the judge told him, "we are not afraid. We are Americans. We have en through the fire before." Congressional investigators have found serious gaps in border security. At a Senate hearing today, the General Accounting Office reported its undercover agents easily entered the United States from both Mexico and Canada. They used fake identification documents made with computer software that's widely available. The GAO said in some cases border guards never checked the papers. The economy stalled at the end of last year. The Commerce Department reported today the Gross Domestic Product grew at an annual rate of just 0.7 percent from October through December. That news helped make it a bad day on Wall Street. The Dow Jones Industrial Average lost more than 165 points, or the Dow Jones Industrial Average lost more than 165 points, or 2 percent, to close at 7945. The NASDAQ fell more than 35 points, more than 2.5 percent, to close at 1322. The Senate Judiciary Committee split today over endorsing Miguel Estrada as a federal appeals judge in the District of Columbia. Republicans carried the party- line vote, and sent the nomination to the full Senate. Democrats said the Washington lawyer lacks judicial experience. Republicans charged the real issue is that he's a conservative Hispanic. President Bush originally nominated Estrada in May 2001. A federal advisory panel refused to call for major changes in title ix today. That's the law that's led to a dramatic rise in women's participation in high school and college sports. Opponents have said it forces schools to cut men's sports to meet required ratios. Today the commission deadlocked on a proposal to ease that requirement. Instead t adopted only minor changes. The commission's report now goes to the secretary of education. That's it for the news summary tonight. Now it's on to how Europe sees Iraq, losing value at AOL- Time Warner, ways to repair Medicare, and a Richard Rodriguez essay.

FOCUS EUROPEAN RIFT

JIM LEHRER: The differences within Europe and with the United States over what to do about Iraq. Margaret Warner has the story.

MARGARET WARNER: And on that we get four perspectives now from four Europeans. Radek Sikorski is a former deputy defense minister and deputy foreign minister of Poland. He's now director of the new Atlantic initiative at the American Enterprise Institute. Jean-Robert Leguey-Feilleux is a professor of political science at St. Louis University. Born and raised in France, he's written extensively on international relations. Stephan Richter is the German-born but now U.S. citizen publisher of the "Globalist," an online daily that focuses on the global economy, politics, history, and culture. And Maurizio Molinari is a New York-based columnist for the Italian newspaper, "La Stampa." He's in Washington, covering today's White House visit of Italian Prime Minister Berlusconi. Welcome to you all.

Mr. Sikorski, what message was the Polish prime minister trying to send today by signing this op-ed article with the seven other European leaders?

RADEK SIKORSKI: I think he was saying that, look, two weeks ago, France and Germany said that they are not with America, that that is not the view of the entire Europe, that we may have our doubts, but we are comfortable with American leadership of the free world, and that even if we have doubts, we are going to trust the leader and that you need friends in need. And America needs our help now.

MARGARET WARNER: Is that where the Polish public is, or is the leadership out ahead of or closer to the U.S. than the Polish public?

RADEK SIKORSKI: The Polish public is the most pro-American in Europe for a variety of historical reasons. But we remember a previous leader who was denounced by Europe's chattering classes, that was Ronald Reagan, and he was vindicated and he helped to bring about our freedom, our liberation from communism, so we feel instinctive sympathy with America.

MARGARET WARNER: Stephen Richter, Germany has been really leading the charge against this. It is now about to become president of the Security Council, one of the rotating seats. Chancellor Schroeder declared last week he would do anything in his power to avoid war or prevent war. Why? Why is Germany so adamant?

STEPHAN RICHTER: On a personal level, the chancellor never knew his own father, he born in 1944. The father died a couple of months after his birth. That makes him feel a little personally leery about war. Now, he's also very much a tactician and an opportunist as any politician is and used the war issue for his election campaign, as did the President of the United States. I think as a German, I entirely feel with the Polish people. I think it's very important, but that leadership that Ronald Reagan provided to provide Poland's freedom, the note that you had about a leader, that we stand behind the leader. German history, if anything, teaches us to be careful about just standing behind any leader without questioning. You had Sen. Dodd on and you had Chuck Hagel on before. They very much articulate the same questions as the German government, and this is almost unbelievable to me, that two very powerful senators in the Foreign Relations Committee are asking, "Mr. President, Mr. Armitage, where are the facts?" So the Germans, in effect, all they're trying to do, is that they led a little bit of the domestic opposition in this country. It seems like it took half a year for the Democrats to kick in. They had their election; they kept mum for domestic reasons.

MARGARET WARNER: Explain for us why the German people... because the polls show they're very much against going to war, almost it seems no matter what the evidence may show. Why are the German people so opposed?

STEPHAN RICHTER: Because they have a collective memory, not just of World War II. But even though most people weren't alive in World War I, they remember all that's coming possibly with terrorism. And I think if you look at that letter today and you read it, if I were the French foreign minister, I would sue the Wall Street Journal for violation of my intellectual property rights because that letter articulates nothing but the French position. The key sentence is "we want to stay with the U.N. process and we want the U.N. Security Council to did and fulfill its responsibilities." So the French foreign minister couldn't even argue that everybody embraced that position. It's very funny, what's going on there.

MARGARET WARNER: But let me ask Prof. Leguey-Feilleux to jump in here now and explain the French position. France of course, like Germany, has said it wants to do anything it can to avoid war. Why?

JEAN-ROBERT LEGUEY-FEILLEUX: Well, the French, as many others, are not convinced that the evidence is sufficient to do something as drastic as going to war with Iraq. And perhaps also the French, remember how this issue, what started... you know, out of the blue, all after sudden, it was a matter of regime change in Iraq. Instead of starting diplomatically trying to build a constituency for some pressure on Iraq, it was right away, "let's remove Saddam." And the French aren't convinced that this is a sound policy t follow.

MARGARET WARNER: Professor, there is a very critical view, as I know, you know, living in this country of really what's behind the French position. You hear even people in the administration say, "well, France is just very competitive with the United States about leadership." There's also people say...you know, some critics say that France is mostly concerned with protecting its economic interests in the Arab world. Do you think either of those two points have any merit?

JEAN-ROBERT LEGUEY-FEILLEUX: Well --

MARGARET WARNER: As motives I mean for the French position.

JEAN-ROBERT LEGUEY-FEILLEUX: Well, we do not know what is going on behind the closed doors or making foreign policy. Certainly a response to French public opinion would invite the French leadership to be cautious. Beyond that, economic arguments are important, but let's remember that if the economy, especially the issue of oil, were to be primordial in this position, then it would be the wrong move because it is pretty evident that the United States is prepared to go to war with Iraq even if it doesn't have the support of the Security Council. So what does that mean? The U.S. is going to win that war, and at the end of war, who is going to be in charge of the oil, whatever's left, and the rebuilding of Iraq? The U.S. Do you think the French will have a chance to gain any benefits from, you know, rebuilding Iraq coming from the United States?

MARGARET WARNER: Maurizio Molinari, the Italians also Prime Minister Berlusconi signed the letter today, he also gave a very fulsome declaration of his support for the U.S. and the U.S. position today with the president. Why?

MAURIZIO MOLINARI: Well, Italy belongs to the old Europe but wants to bridge the gap that today we have between countries of the old Europe, as Germany and France and countries of the new Europe, as Poland, the Czech Republic and Hungary. Italy is going to be the president of the European Union next June, so it has a responsibility to keep the Europe together. This is the reason why Prime Minister Berlusconi along with Premier Blair and Jose -- decided to go forward, to create a platform, to try to find an agreement. Today in the White House speaking close to the Pres. Bush, Berlusconi said, "I want to speak also with the French, with my German colleagues." Let's find a common ground." The document that was published today by the Wall Street Journal is not a document to split, to divide Europe but to put the old and new Europe together closer to the American friends.

MARGARET WARNER: Your prime minister also today said something quite similar to what Mr. Sikorski said, which was that Italians remember the role America played in liberating Europe and in liberating Italy. Is that widely shared in the Italian public, that view?

MAURIZIO MOLINARI: Well, most of the Italians feel themselves very close to America because they we liberated and they were defended they were liberated from the Nazis and they were defended by the threat of the Soviet Union. But also, most of the Italian, they are anti-war. They want peace. They don't like the idea to go to war in Iraq. This is a very strong feeling in our public opinion. And this is the reason why the document that we are referring to is asking the international community to remain, to stay inside the frame of U.N. This is the frame that is understood by the public opinion as a guarantee that the peace will be kept.

MARGARET WARNER: All right. So Prof. Leguey-Feilleux, let me go back to you first, because France, of all the countries in this little conversation here, has the only veto on the Security Council. What would France be looking for... I'm talking about the four of you. What would France be looking for from Sec. Powell next week? Is there anything he could say that would bring France around to support perhaps a second resolution?

JEAN-ROBERT LEGUEY-FEILLEUX: More evidence. And I think the foreign minister of France has already indicated that it welcomed this opportunity to hear the secretary of state present more evidence, if he has the evidence and because that could make a very big difference, especially with regard to French public opinion. It's still puzzling why, if there is such evidence, it hasn't been brought forward before. After all, it's a matter of building towards war. Would we want to have more people rallying behind this effort, including the American people, as was said earlier, the Democrat leadership is very much in doubt about the wisdom of going to war now.

MARGARET WARNER: Let me go back to France for just a minute. Are you suggesting, then, though that you think France might "come around" to the American position if the evidence were compelling enough and might actually participate?

JEAN-ROBERT LEGUEY-FEILLEUX: Absolutely. This is what the foreign minister has just said, and that would be a good way to bring countries together and to build a coalition.

MARGARET WARNER: Stephan Richter, last night, Sen. Joe Biden of the Foreign Relations Committee was on this program. He said there is no way, there is nothing that could be said that persuade Germany to vote for another resolution or support military action. Do you agree with that?

STEPHAN RICHTER: Well, it depends on who's chancellor in Germany. The current chancellor is facing some elections, which may make his party drop him quite quickly. I think for Germany and I think the foreign minister would be very much behind that position. There is no way that Germany and responsible politicians in our country can say no to the U.N. Security Council. I think Chancellor Schroeder badly overstepped... he was right on the adventure. That's what the Democrats in the Congress and many American people are wondering about. But to say no to the U.N. Security Council is a basic thing that somebody who's running for school board doesn't do as a leader of a country, you don't answer hypotheticals, which he did, he got himself into trouble domestically and internationally. He well deserves that.

MARGARET WARNER: But briefly do you think Germany will continue for instance, even with the NATO to block as they have the U.S. requests that NATO start planning to defend Turkey?

STEPHAN RICHTER: I hope not. This is a question of a timetable. This is a question as the Journal also wrote today, do we go in there by April because otherwise in the bodysuits it's getting too hot or do we have to wait till the fall? That's where the Germans hopefully come out and stand out because everybody wants to take care of Saddam, but the world community needs to do it the right way.

MARGARET WARNER: Mr. Sikorski, of course as you know, the president has said U.N. or not, he's going to lead a coalition of the willing. Would Poland participate in that? Would Poland be more comfortable if there were a second U.N. resolution? Are there any preconditions to taking part? What would taking part mean? I'm giving you a lot of questions there.

RADEK SIKORSKI: Surely everybody would be happiest if Saddam would just drop dead and we wouldn't have to go to war. But if we have to go to war-- and remember, waron the continent of Europe is a much weightier word than here. Here war is basically a foreign expedition. When we say war, we mean our cities destroyed, tanks rolling. But nevertheless, Poland has said that we will be with you no matter the U.N. I think in Europe, there is a tendency to fetishize the United Nations

MARGARET WARNER: To fetishize?

RADEK SIKORSKI: Yeah. I mean the U.N. is an organization which has Libya as the chairman of its Human Rights commission. Let's not think of the U.N. as some kind of world government without which... that has some kind of monopoly on legitimizing force. It's ultimately a political institution in which countries defend their interests, moreover, a political institution that no longer reflects the correlation of forces in the world. If such a body were to be put together today, France wouldn't be on it.

MARGARET WARNER: I'd need to go back to Mr. Molinari. Do you want to say a quick word?

STEPHAN RICHTER: I just want to say everything you want to say about the enlightened nations applies at least a much to a single nation, even it is the strongest in the world right now. I think the global community needs to come together, and we can't just let one nation, one president, not even this nation, highjack that process. I think that's a very dangerous thing, and I think this is a reform opportunity for the United Nations that your position then would curtail.

MARGARET WARNER: And Mr. Molinari, Italy's view, in terms of what it would take for Italy to take part, would Italy be willing to participate with or without further U.N. backing?

MAURIZIO MOLINARI: Well, in terms of coalition of the willing, Italy in these hours, along with the U.K. and Spain, they are working together to build the political coalition. It means the group of countries that will say, "okay, under the Resolution 1441, is it possible, there is a legitimacy to go on and to strike Iraq?" But of course the preference of the Italian government is to have a second resolution that openly will say, it's time to go. We have to disarm it in this way." So the preference is for the second resolution. But Italy is also working to have a broad political coalition -- in any case, if one be needed. From a military point of view, it's very difficult to say because my country has a very large number of soldiers in the Balkans, also in Afghanistan and we are not a military power. So to send in this case, military people in the Gulf would be very, very difficult for us.

MARGARET WARNER: All right, gentlemen, thank you all.

JIM LEHRER: Still to come on the NewsHour tonight, vanishing value at AOL-Time Warner, fixing Medicare, and a Richard Rodriguez essay.

FOCUS VANISHING VALUE

JIM LEHRER: Yesterday, media giant AOL-Time Warner announced its value had dropped close to $100 billion last year, the largest loss ever for an American company. How can that happen? Our business correspondent Paul Solman of WGBH-Boston explains.

SPOKESPERSON: Welcome. You've got mail.

PAUL SOLMAN: You've got mail. This became a clich of the early Internet age. Though, despite their though despite their anonymous email romance via America Online in the 1998 film "you've got mail," tom hanks of the behemoth bookseller, fox books, was about to put Meg Ryan's little shop around the corner out of business.

SPOKESMAN: Bummer.

PAUL SOLMAN: Reporter: Because, in corporate America, bigger was better. Or at least, unstoppable.

ACTRESS: A Fox books superstore.

ACTRESS: Quelle nightmare.

ACTRESS: It has nothing to do with us. It's big, impersonal, overstocked, and full of ignorant salespeople.

ACTOR: But they discount.

PAUL SOLMAN: It was happening in books, and also on the books. That is, companies were doing everything they could to grow fast. Exhibit A-- O.L.: America Online itself and its $166 billion purchase of media giant Time Warner in the year 2000. The stated purposed was to create what were called synergies between the firms. That is, the new merged entity would be worth more than the sum of the old parts.

STEVE CASE: The merger of the number-one Internet company with the number-one media company will bring together the best of both worlds, and create one of the most respected and most valuable companies in the world with strengths in every link of the media value chain.

MICHAEL KELLY: The synergies will be approximately $1 billion, really reflecting the value and the combination that these... this enterprise will have overall.

PAUL SOLMAN: And that would be just in the first year alone, with far greater synergies to come. Now synergy is invoked in most mergers, usually to justify their high cost-- in this case, nearly double Time Warner's stock price just before the deal was announced. Here, for instance, synergy would come from what AOL consumers would see when they logged on: Ads for Time Warner products, and then they'd supposedly by the products themselves. The combined company figured to sell more than enough ads and products to justify the price of the deal.

GERALD LEVIN: Think back to the Warner Brothers movie "You've Got Mail," nicely promoted jointly with AOL

ROBERT PITTMAN: This is the perfect one-plus- one-equal-three opportunity. We are the missing piece of each other's puzzle.

PAUL SOLMAN: Unfortunately, pieces of the AOL-Time Warner puzzle are still missing three years later, as it so happens, are the men you just heard: AOL's three top executives, and Time Warner's former chairman and CEO, and now even vice chairman Ted Turner-- all victims of the vanishing value of the combined company. Witness this week's write-down of $45 billion in the value of assets, on top of the $54 billion write-down earlier in the year. Grand total: $99 billion, the largest recorded write-down in U.S. corporate history. So where did all that supposed synergy go? Well, to answer that question, return with us now to the 2001 annual report to shareholders, published last spring. AOL-Time Warner was still putting its best faces forward, still selling synergy. "We are singularly well positioned to cross promote our products and services and offer our partners unequalled advertising opportunities." The company's stock, however, had by then dropped to less than half its price at merger time. One plus one was now equal to about .79. Check out the fine print deep inside the report: "AOL Time Warner expects to record a one-time noncash charge of approximately $54 billion in the first quarter of 2002." We tracked the lost billions with accounting Prof. Paul Healy, examining AOL'S balance sheet.

PAUL HEALY: The balance sheet shows the firm's assets, the resources that it owns. It shows its obligations to creditors and banks, called liabilities. And it shows the residual, what's left over for shareholders.

PAUL SOLMAN: And it's a balance sheet because what the company owns has to balance where the money came from.

PAUL HEALY: Correct.

PAUL SOLMAN: And so synergy?

PAUL HEALY: Synergy shows up on the asset side. You can see assets include cash, and they include receivables from customers, and property, plant and equipment. But the synergy shows up in this item called goodwill.

PAUL SOLMAN: Goodwill, right. And goodwill is?

PAUL HEALY: A large part of the goodwill is the value that the company places on the synergy that justifies the price it paid for Time Warner.

PAUL SOLMAN: Now "Goodwill" is a catch-all category on the balance sheet designed for intangibles: The supposed value of a brand name, like AOL say-- the synergy of a deal like this one. We went goodwill hunting--trying out a fanciful merger synergy idea on Paul Healy's Harvard colleague, Krishna Palepu.

PAUL SOLMAN: So let's say Pottery Barn, the home furnishings chain, buys Barnes and Noble, the bookselling chain, and becomes Pottery Barnes and Noble.

KRISHNA PALEPU: Clever idea.

PAUL SOLMAN: Because we'll get synergy.

KRISHNA PALEPU: Yeah, we'll get synergy. Because we can cross sell books in Pottery Barn Stores, and maybe we can put more couches in Barnes and Noble and thereby we can increase sales in both chains.

PAUL SOLMAN: In addition to using books to sell couches and vice versa, there would also be synergy through lower costs: Just one web site instead of two, one computer department, one headquarters, one logo-- synergy through sign-ergy, if you will.

PAUL SOLMAN: And how would we account for all the synergies?

KRISHNA PALEPU: Well, let's assume that Pottery Barn paid a premium or going market price for Barnes and Noble. The difference between the two will be booked in the balance sheet as goodwill, assuming that there are going to be gains from increased sales and therefore more profits.

PAUL SOLMAN: And if there aren't?

KRISHNA PALEPU: If there aren't, then we'll have to say, "oops, it isn't goodwill, it's bad judgment," and we have to write that off.

PAUL SOLMAN: In fact, says Palepu, two-thirds or more of all takeovers don't justify the purchase price. So if you wind up with stock in the merged firm, you're usually out of luck. And in AOL-Time Warner's case, the lack of synergy was hugely compounded by the bubble- inflated value of the AOL brand name. That's another reason the combined stock has gone down. Add failed synergies, and there's a lot of lost goodwill to account for and write down.

PAUL HEALY: To a stockholder, this means that AOL has essentially acknowledged that its rationale for the merger hasn't worked. The company's lost a lot of value in its assets, and its shareholders have been penalized dramatically. The stock price has plummeted for AOL.

PAUL SOLMAN: So does this mean there is no such thing as synergy -- that this merger, and most others, are doomed? Well, says Wall Street analyst John Tinker, not necessarily.

JOHN TINKER: Synergy is totally out of fashion now because over the short-term, it has totally failed. Over the longer term, it's a more interesting question because a lot of large companies don't come together easily, but take time to meld, deal with the "personality issues," i.e., someone has to get fired. At which point, the assets have an opportunity to work together.

PAUL SOLMAN: And in this case they would work together how?

JOHN TINKER: In AOL-Time Warner's case, for instance, the magazines, where readership slips every year because fewer people want to read, might have their content information ideas sold via the Internet in a different form of distribution where people still want to get the idea, but not by picking up a newspaper or magazine.

PAUL SOLMAN: All companies, says Tinker, from Fox Books and the little shop around the corner-- which in some sense merged happily ever after-- to AOL and Time Warner, are under pressure to get big enough to roll withthe tides of time and technology, finance new initiatives, foreign ventures and the like. To Tinker, then, synergy is often a code word for growth.

JOHN TINKER: Synergy is a great sound bite. It's succinct, it sells the idea that this deal benefits everybody and everything.

PAUL SOLMAN: And there's some explanation as to how it does so.

JOHN TINKER: It's a magical coming together of these assets from which great new products, whatever will come out. And what companies are really saying, which is a less palatable message, is we need to be big and we need to have muscle. And people don't always react well when they hear that, but that in reality is what synergy is.

PAUL SOLMAN: That's what happened, many would argue, with the merger of Time and Warner to create Time Warner itself -- something that has happened in industry after industry throughout the history of corporate America. On the other hand, size alone does not guarantee success. The data suggest, as we've already said, that most mergers don't pay off, because synergy is pretty much like anything else: If you pay too much for it, you may find out that you got nailed.

FOCUS FIXING MEDICARE

JIM LEHRER: The problem with and politics of Medicare. We begin with a report from Susan Dentzer of our health unit, a partnership with the Henry J. Kaiser Family Foundation.

SUSAN DENTZER: During his State of the Union speech Tuesday night, Pre. Bush repeated his call for dramatic changes in Medicare the federal health insurance program for the aged and disabled.

PRESIDENT BUSH: Health care reform must begin with Medicare; Medicare is the binding commitment of a caring society. We must renew that commitment by giving seniors access to the preventive medicine and new drugs that are transforming health care in America.

SUSAN DENTZER: In a speech yesterday in Michigan, the president elaborated just a bit more.

PRES. GEORGE W. BUSH: I believe that seniors, if they're happy with the current Medicare system, should stay on the current Medicare system. That makes sense. If you like the way things are, you shouldn't change. However, Medicare must be more flexible. Medicare must include prescription drugs. Medicare must be available to seniors in a variety of forms. I like to remind people medicine has changed and Medicare hasn't stuck in the past.

SUSAN DENTZER: Along with a number of analysts, and some like-minded members of Congress, President Bush believes that the current Medicare program is deficient in many respects. They say those deficiencies mean that Medicare beneficiaries don't always get the best care -- even as the program lacks incentives to control costs.

In what's widely regarded as Medicare's biggest shortcoming, the current program doesn't pay for most prescription drugs consumed outside the hospital.

As a result, although many Medicare beneficiaries can get coverage for drugs in other ways, such as through private health plans, it's estimated that roughly 11 million seniors have no such drug coverage whatsoever.

Eighty-two year-old Alvin Shapiro is one of those 11 million. We spoke with him last year.

ALVIN SHAPRIO: What good is it to give a man -- pay for his surgery $50,000, pay for this, pay for that, pay a small fortune for his bypass and then you don't give him money to take his heart pills? Now, that's foolish, that's foolish.

SUSAN DENTZER: But the program has also failed to keep pace with the times in other ways. One example is that Medicare does not pay health-care providers to offer a broad range of preventive care that could help beneficiaries helpward off devastating diseases like diabetes or keep them under control.

Louisiana Democratic Sen. John Breaux, who has backed reforms similar to the president's, says adding drug coverage without making other changes would be disastrous.

SEN. JOHN BREAUX: I think it would be a serious mistake to just add more benefits to the current Medicare program without reforming the system; it would just hasten its demise, and we do not want that to happen.

SUSAN DENTZER: So that's why the president, many Republicans and a handful of Democrats want a new approach. They would allow Medicare beneficiaries who are happy with the current program to stay in it. But if beneficiaries wanted prescription drug coverage, they would probably have to enroll in one of a range of plans offered by private health insurers; those could range from HMOs to so-called "fee-for-service" closer to traditional Medicare.

The president proposes to spend $400 billion carrying out these reforms over the next decade. But beyond that, many details of the plan are still being developed. And concerns are being voiced by members of both parties.

Republican Sen. Charles Grassley of Iowa said in a statement yesterday that "Prescription drug coverage should be available to all seniors, not just those who switch into managed care." Democrats have been even blunter.

SEN. TOM DASCHLE: Rather than simply adding prescription drug coverage to a Medicare program that works, the President's plan would coerce seniors to drop out of traditional Medicare and join an HMO in order to get even limited drug coverage.

SUSAN DENTZER The President's full plan may not be available for days.

JIM LEHRER: Ray Suarez takes it from there.

RAY SUAREZ: So what is next for Medicare? Joining me now to discuss the possibilities are Gail Wilensky, a senior fellow at Project Hope, a foundation for international health education. She was an adviser to George W. Bush on health care issues during the 2000 campaign. And Gail Shearer, the director of health policy analysis for Consumers Union, a consumer advocacy group.

Well, the president gets a by partisan hand when he says that he's going to fix Medicare. Is there a consensus on what about it needs fixing, the place from where you start, Gail Wilensky?

GAIL WILENSKY: Well, there's some agreement. There's certainly agreement that there is no prescription drug coverage and that's a problem. There's agreement that there's not catastrophic coverage, there's no limit that a senior might have to pay if they get very sick in terms of the physician care. There's a share of physician care. There's a lot of dispute about whether Medicare is more or less okay, except for the benefits it doesn't have, or whether it needs to be brought into the 21st century. The president mentioned that Medicare still has a lot of attributes of its original 1960s heritage, medicine, how it's delivered and finances has changed a lot. There's dispute about how important that is and whether or not this is a program that's ready for the 78 million baby boomers that are going to start retiring at the end of this decade and really fit for the 21st century.

RAY SUAREZ: Gail Shearer?

GAIL SHEARER: Well, I think it's important not to lose sight of what Medicare is doing right, and I think that's sometimes lost in this debate. When people turn 65, they get Medicare coverage and they know they're going to have it for the rest of their lives, and that's wonderful because when you look at the people under 65, some 41 million have no health insurance at all, and if they lose their job, they lose their health insurance. So while there are problems with Medicare, and we really need to build in a prescription drug benefit for all Medicare beneficiaries, I think it's important not to lose sight of the fact that it's serving a really important function and doing a pretty good job of it.

RAY SUAREZ: And are the recipients generally satisfied? Do we know that?

GAIL SHEARER: In general, they are. They are not happy when it comes to the gaps that are there. For example, the cost of prescription drugs, the cost of long-term care. They tend to be very satisfied when they're in traditional coverage because, let's not forget, when your in traditional Medicare coverage, you're free to go to any doctor, which means when you get sick, you know you can go to the best doctor. You know that year after year, you're going to have continuity of care, you're not being forced into the private marketplace where you may have to change doctors on a regular basis and you may have to change plans every year.

GAIL WILENSKY: Well, any doctor that will take you, that is, and one of the issues that is on the table now is a real concern because traditional Medicare has reduced payments to doctors two years in a row. Traditional Medicare is a government-administered pricing system. And while the seniors tend to like the program, as Gail has indicated, except for the areas that it doesn't cover, many of the doctors and the hospitals and home care and nursing home groups find it very difficult because of the pricing structure and the rules and regulations and the complexities and sometimes the frustration of not being able to do things that are done normally in a private insurance, like disease management, trying to coordinate the care for somebody with diabetes or congestive heart failure, or getting a new technology covered. Medicare was very late in bringing on liver transplants, years after the private sector had covered them. It was very expensive and there was a lot of nervousness about whether Medicare should actually go in that area. So the provider community, physicians, hospitals, et cetera tend to be a bit more frustrated than the seniors.

RAY SUAREZ: When the president talks about some Medicare recipients being freed to move to a different kind of plan, very few details have been given but what would that look like? What shape does that take? What are you hearing about what the administration has in mind?

GAIL SHEARER: Well, the details are very sketchy, but we're getting the sense that he's suggesting if you want to stay this traditional Medicare, fine, more prescription drug benefits for you. If you want prescription drug benefits, you can either enroll in an HMO, Health Maintenance Organization, where you have restrictive choice of doctor or you can enroll in a PPO, Preferred Provider Organization, which means there will be a network. If you go outside the network, you will have to pay more with unlimited cost sharing. It's really opening the door to the private marketplace and lots of uncertainty for seniors and the disabled and no guarantees that you'll have prescription drug benefits that meet the level that others have.

RAY SUAREZ: What are some of the up sides and down sides of doing just what she described?

GAIL WILENSKY: What she was describing exists for federal employees, the federal employees health care plan that has been mentioned frequently in the last few days allows workers who live all over the country, not just in Washington, to have a choice of health care plans every year in November they can stay where they are or choose another one. They get information about what they would have to pay if they had certain kind of illnesses. The federal government's contribution toward the premium doesn't vary with the plan they choose, and that makes them more aware of the benefits that they would get and if there are some tradeoffs involved and what it would cost them. The up side is that the flexible types of networks that have worked well for most of in us this country, that allow doctors that may choose not to participate in Medicare in the future-- it really hasn't been a problem much in the past-- or that have other benefits that are part of the package that is not part of the Medicare package could be offered to seniors. I think it's very important to have seniors be able to choose the plans that meet their needs. They won't be the same plans and it won't be the same benefits, and it probably won't be the same price.

RAY SUAREZ: But we heard the president say that seniors who like the program they're under, if they're happy, they should stay, he said. If you set up two parallel structures like that, don't you lose some of the efficiencies that you achieved by having one, lower management costs and...

GAIL WILENSKY: Well, you don't really need to have 35 million or 39 million people in a plan in order to have efficiencies. And you don't actually need to do what the administration sounds like it's suggesting, if you follow the federal employees' model; that is, you could have all plans offer a basic and a comprehensive version, both traditional Medicare having a basic and a comprehensive and all the other plans and have them all be treated on the same basis. This was a different way to try to change some of the incentives but if you look at this model that exists and has worked successfully for federal employees to not cause the kind of managed care backlash that we saw in the rest of the country, the important idea is that they're treated the same, traditional Medicare and other plans, because some people will find constraints of HMO not to their liking. They want fee for service, they may feel comfortable in the traditional Medicare plan with the very heavy government involvement, and they should be able to stay there. I don't think it's going to be possible to say, "you can stay there but not get prescription drugs." I think politically that's not going to be a viable strategy, although we'll wait and see. This is very early in the process, so maybe I shouldn't say it's not politically viable. It's certainly causing a lot of comment.

RAY SUAREZ: Political viability?

GAIL SHEARER: Well, I don't think you can say some people get coverage and some people don't. But I think it's important to go back to this federal employee model and remember that it works well for federal employees, but we're talking about a very different population here, a population of older people, a population of people who may have difficulty reading that fine print every year and having to go through and pick a new health plan and they'll be totally confused. So I'm not convinced that that's the right model, and I'm pretty convinced, though, that a program that says you have to sacrifice your freedom of choice of doctor to get what we know you really want, I don't think that will fly politically.

RAY SUAREZ: We already heard some senators expressing doubts about being able to get prescription drugs by leaving traditional Medicare. That doesn't... sounds like it's losing steam.

GAIL WILENSKY: I think the question will be: Some benefit, but not as much benefit,or maybe the government's spending on behalf of the senior the same whether it's the traditional program for a different program, other ways to approach this strategy. There's concern that if we don't begin to modernize Medicare for the 21st century, we're going to have a lot of trouble, a lot of pressure relying only on pushing the providers to restrain spending when 78 million baby-boomers start to retire.

RAY SUAREZ: Why has it been so hard to fix this so far?

GAIL SHEARER: Well, there really is a philosophical divide in Congress and in the country. There are those who believe that the marketplace, the private marketplace can fix this problem. There are those who believe that it has to be a governmental solution. That's one problem. The second big problem is dollars. What is our national priority here? What are our priorities? Do we want to spend what it takes to build in a Medicare benefit, like doctor coverage, into Medicare, or do we want to give tax breaks to people? I mean we really have to think hard about how much we want to spend. The president's proposal, it's important to keep this in context. If all of that money went to pay for prescription drugs, it would cover about one fifth of what Medicare beneficiaries are expected to pay for drugs.

RAY SUAREZ: The $400 billion.

GAIL SHEARER: The $400 billion. That's right. It's a relatively small share of what people are paying and it's important to keep that in context.

GAIL WILENSKY: Of course our history is wherever we start, we will end up spending much more. When Medicare started, the premium that seniors pay for part of Medicare was 50-50 in terms of what the government paid and what the seniors paid. Seniors now pay no more than 25 percent of that premium. We've underestimated the benefits every time. We'll underestimate the cost of this one, too.

RAY SUAREZ: Gail Wilensky, Gail Shearer, thank you both.

ESSAY - WAR FEVER

JIM LEHRER: Finally tonight, essayist Richard Rodriguez explores attitudes towards war, past and present.

RICHARD RODRIGUEZ: For months now, American forces have been gathering to invade Iraq. For months, voices on talk radio have argued in favor of war and there have been demonstrations against. The cable networks have been advertising their upcoming coverage, and here and there in America families have wept, saying good-bye to sailors and soldiers.

ANNOUNCER: Americans rallying to the colors.

RICHARD RODRIGUEZ: But otherwise America does not seem a nation fevered or engaged by the prospect of war with Iraq the way America must have felt in those days of December 1941, after pearl harbor. I think of Rosie the riveter, and young men lining up to serve, and victory gardens. Growing up in the 1950s, I often heard adults speak of World War II with a mixture of nostalgia and pride. Though the German bakery had its windows smashed and the Japanese-American family was forced to a detention camp, adults would tell me, "you should have seen it-- the entire nation united." In the 1950s, Americans were no longer in a warlike mood.

EISENHOWER: So help me God.

RICHARD RODRIGUEZ: Dwight Eisenhower was elected president precisely to disengage us from war in Korea, and there would be no great parades when Korean veterans came home. Here in San Francisco Bay, this victory ship, the "Jeremiah O'Brien," was restored by veterans and others. It is open every day of the week to remind tourists and grammar school students alike of the war effort of the 1940s. And for the last several years, as the young men of World War II began to disappear from the world, much literary enterprise was devoted to extolling their exploits and bravery. This literature of memory was silenced by Sept. 11. Americans realized that bravery is not the property of any one generation. Indeed, perhaps someday we will tell wide-eyed children what it was like in 2001 -- how-- despite occasional incidents of brown men being attacked or even killed for looking like or actually being of Arab descent-- strangers on Sept. 11 were quick to help strangers. You should have seen it-- the entire nation united. The anger, the high resolve of those days in September will be summoned again by another domestic terrorist attack. But curiously, the emotional intensity of Sept. 11 was diffused by the "war against terrorism"-- a war, the president told us, unlike any we had known before, the war against terrorism resembles a Tom Clancy novel-- espionage, terrorist cells in Hamburg, Germany, and Rochester, New York.

JOHN ASHCROFT: We believe we have Al-Qaida membership in custody.

RICHARD RODRIGUEZ: Some Americans decry threats to due process, and immigrants complain of being targeted as spies. The recommended patriotic response to terrorism is normalcy.

PRES. GEORGE W. BUSH: Go down to Disneyworld in Florida. Take your families and enjoy life.

RICHARD RODRIGUEZ: "Go on with your lives," the president urges the nation. The surprising thing is how little is asked of us. America has been lucky in its isolation. It has often been hard to convince us of our stake in foreign quarrels. In the 20th century, in the early days of both world wars, many Americans were unconvinced that we had any business preventing Europe from self- destruction. War fever of the sort America experienced after Pearl Harbor or Sept. 11 springs from a sense of an immediate threat -- blood on our soil. Perhaps the Revolutionary War, certainly the Civil War, were feverish times. Though as Martin Scorcese's bloody-minded film, "Gangs of New York" reminds us, the anti- war riots of 1863 were as fierce as war fever of the time. Newly-arrived immigrants refused to fight in a war that wealthy northerners could avoid with a cash payment. 100 years after the civil war's anti-draft riots, the streets of America would see demonstrations against the draft during the Vietnam War. Lately, while U.N. inspection teams scurry around Iraq, the nation is filled with suspicions. The Israelis are behind the plan. The Christian right, big oil, a Bush family feud with Hussein. War looms, an all-volunteer army will fight the war. Statisticians in Washington tell us the war will cost affordable billions of dollars. There will be no sacrifice. A rusting ship from World War II sits in San Francisco Bay to remind us of another time, when an entire nation was united. I'm Richard Rodriguez.

RECAP

JIM LEHRER: Again, the major developments of this day: The leaders of eight European nations urged unity against Iraq. President Bush said he would give diplomacy weeks, not months. And the so-called "shoe-bomber," Richard Reid, was sentenced to life in prison. We'll see you online, and again here tomorrow evening with Mark Shields and David Brooks, among others. I'm Jim Lehrer. Thank you and good night.