The MacNeil/Lehrer NewsHour

Intro

JIM LEHRER: Good evening. In the headlines today, 17 blacks died in a clash with police in South Africa. Another 23 persons, including two TV news crewmen, were killed in southern Lebanon. New figures show surprisingly sluggish growth in the U.S. economy. And five of the closed savings and loans reopened in Ohio. Robin?

ROBERT MacNEIL: On the MacNeil/Lehrer NewsHour tonight, we follow the news summary with an extended focus section on confidence. Felix Rohatyn, chairman of New York's Municipal Assistance Corporation, looks at today's flagging growth estimates, while Merrill Lynch vice chairman John Heinmann and Congressman Charles Schumer discuss confidence in the U.S. banking system after Ohio's thrift crisis. And on the 300th birthday of Johann Sebastian Bach, we profile a musician who lives by his music. News Summary

MacNEIL: South African police fired on a column of black protest marchers today, killing 17 of them and wounding 22. It was the 25th anniversary of the Sharpeville massacre, in which nearly 70 blacks were killed at a demonstration against apartheid in 1960. Today the blacks were shot in a march near Port Elizabeth. They said they were going to a memorial service and that the police fired without provocation. The police said they opened fire only after the blacks began throwing stones and spears at them. There was also a demonstration in Sharpeville. Here's a report by Michael Burke of the BBC.

MICHAEL BURKE [voice-over]: Twenty-five years ago today, 69 blacks were shot dead by police when they protested about the pass laws. They shouted defiance at the authorities, and the authorities weren't slow to react. The police in armored vehicles and land rovers swept into Sharpeville again. They'd been expecting trouble and were prepared. They were met by mobs who stoned any white man who came near. The police tactics drove them into the side alleys of the township, where the land rovers chased those they judged to be ringleaders. When they caught them, they took their revenge with sjamboks. Elsewhere in the township, vehicles were hijacked and burnt. Impromptu barricades were aflame all over Sharpeville, though most of the trouble seemed to be caused by the young.

LEHRER: Today's South Africa violence was condemned by the United States, Secretary of State Shultz, telling a House subcommittee the shooting of demonstrators is a "deplorable tactic."

GEORGE SHULTZ, Secretary of State: The system of apartheid is totally repugnant to me, to the administration, to the President. And the pattern of violence that youcite is only underlining how evil and unacceptable that system is. I'm not prepared in any way to try to defend it. Let me just say again that I find it deplorable and have nothing except denunciation to say for it. There's no excuse for it.

LEHRER: There was also death and violence in Lebanon today. Israeli army troops stormed Shiite Moslem villages in southern Lebanon looking for guerrillas. The Israeli government said 21 guerrillas were killed and large quantities of mortars, grenades and other arms were seized. Two Lebanese newsmen employed by the CBS television network also died in the action. The CBS car was badly damaged, and other journalists present said an Israeli tank fired two shells at it from a distance of 500 yards. The Israelis said their tank crew fired at armed men who had taken firing positions. Several television news crews and other reporters were also in southern Lebanon to cover the Israeli search for guerrillas. Here is a report from Keith Graves of the BBC.

KEITH GRAVES, BBC [voice-over]: The Israeli armored column -- 60 tanks, personnel carriers and trucks carrying paratroopers -- crossed Israel's front line at the Litani River at dawn and swept north and then west in an arc that brought them quickly to within four miles of the port city of Sidon, through territory they'd abandoned just a month ago. Terrified and bewildered villagers fled as the Israelis advanced. The villagers know from experience that once the Israelis arrive, there is no escape. They seal the villages off and carry out systematic searches, killing anyone who offers resistance, taking with them when they retreat the village's youths and menfolk.

That's what happened at Humin Al Tahta, a small Shiite Moslem community. For several hours the Israelis went through the village building by building. Most civilians had fled, but Shiite militiamen equipped with small arms and rocket-propelled grenades appeared to have put up some resistance. When that ended the Israelis set fire to some buildings, blew others up. Then across the valley where militiamen were gathering, they opened up on Ankun. Tanks had moved around the back of that village after firing from close range. The story was repeated in a chain of other villages in a major escalation of Israel's iron fist policy.

MacNEIL: The government issued figures today to indicate that the U.S. economy is slowing down and inflation is speeding up. The Commerce Department said its advance estimate shows growth of only 2.1 in the gross national product for the first quarter of 1985. Many economists had predicted a rate of three to four percent. The same report indicated that in the first quarter, prices were rising at an annual rate of 5.4 , the highest rate since the spring of 1982.

In Ohio, the doors were open again today at five of the savings and loan associations that closed last Friday because of a run of depositors asking for their money. Here's a report on one in Columbus by George Zimmermann of Ohio Public Television.

GEORGE ZIMMERMANN, Ohio Public Television: Century Savings opened four branches scattered across the state this morning.

[voice-over] Century's Columbus branch was busy, but there was no sense of panic among customers.

MARK ZITRON, depositor: Century's always been strong, and I did look at their finances before I deposited my money here originally. I'm really not concerned at all with them.

ZIMMERMANN [voice-over]: And while many customers made deposits, opened new accounts and the like, some did come to withdraw their money and close their accounts.

[interviewing] What were you doing at Century Savings today?

PAULA ENNIS, depositor: Withdrawing.

ZIMMERMANN: And did you close out your accounts here?

Ms. ENNIS: Yes.

ZIMMERMANN [voice-over]: Paula Ennis said she was moving her money to a bank.

Ms. ENNIS: I just want to put it in a safe place. I'm not that rich, but I just want want to protect what I have.

ZIMMERMANN [voice-over]: Although Century Savings officials said they had experienced about one and a half million dollars in withdrawals by early afternoon, they indicated few customers were closing their accounts.

JOAN SORRELL, branch manager: I don't know any exact numbers, but a very, very small percentage. We have a large customer base here, and have really had a very few percentage as far as closeouts are concerned.

ZIMMERMANN [voice-over]: Ohio officials hope more of the closed savings and loans will reopen tomorrow as they meet the requirements for federal deposit insurance.

MacNEIL: Later in the program we'll focus on the problems of the economy in general and financial institutions in particular.

Another government document out today proposes a slowdown in selling leases to drill for oil and gas offshore. But for the first time in 27 years, leases would be offered in waters off the Pacific Northwest. The first draft of an Interior Department five-year plan calls for one sale every three years instead of one every two years in areas outside the Gulf of Mexico, where they would still be held every year. The plan would take effect in June 1987.

LEHRER: In Washington today, a former intelligence officer in El Salvador said top military officers were behind the right-wing death squads in his country. Former Colonel Robert Santivanez told a news conference orders to eliminate their leftist opponents came from the very top of the military.

ROBERTO SANTIVANEZ, former Salvadoran intelligence officer [through interpreter]: The then-Colonel Vides Casanova, who's now a general, participated in the decisions for -- and also would hear, first in the discussions and heard firsthand, different plans whether the government or the death squads to carry out various actions. He was also responsible for the coverup of one of the most serious cases, the case that has been called of the four nuns, even though they were actually only three nuns -- one was a missionary. This coverup began in December 1980, and here we are in 1985 and it is still continuing. The general is still minister of defense, and the man responsible for these murders is a high-level military commander in Santa Ana.

LEHRER: Santivanez also charged that a former Nicaraguan national guard officer received $120,000 from the Salvadoran right wing to arrange the 1980 assassination of El Salvador's Archbishop Oscar Romero.

MacNEIL: Moscow sounded a conciliatory note today. At its first regular meeting since Mikhail Gorbachev became general secretary of the Communist Party, the Politburo called for new detente. In a report on the meeting, Tass, the Soviet news agency, said the period of relaxed tension in the 1970s showed that East and West could cooperate in a spirit of peaceful coexistence and said the Soviet Union is ready. Relations with the Soviet Union under its new leadership are likely to be among the topics of President Reagan's news conference this evening at 8:00 p.m. Eastern time. Economy: Changing Mood

LEHRER: We focus first and foremost tonight on the new troubles of the economy, the real and the imagined -- the latest of the real being today's report of a surprisingly sluggish growth in the economy. Yesterday it was the news U.S. consumer confidence in the economy is lower now than it's been in 30 years. And all week it's been the crisis of the savings and loans in Ohio which triggered dollar prices down, gold prices up and fears about the health of the entire U.S. nancial system, banks as well as savings and loans. We get first an overview of what's going on from a man who overviews the U.S. and the world economy for a living. He is Felix Rohatyn, a partner in a prominent New York investment firm and chairman of the Municipal Assistance Corporation for the city of New York, among other things.

Mr. Rohatyn, first, how do you look, what do you see in these growth figures today? What do they mean to you?

FELIX ROHATYN: Well, first of all, I think you have to be always a little bit careful with any set of numbers, because so many of them get adjusted afterwards and so many of them have turned out to be not exactly on the mark. On the other hand, it seems to me that it's perfectly logical, when we've had an economy that has functioned so heavily with foreign imports coming in, that at some point things were going to slow down. Now, whether this is the beginning of the slowdown or whether it will happen a little later, nobody can tell. What seems to me to be the overriding question in all this is the fact that we really can't afford to go into a recession in this country with the level of deficits as it stands today in a period of high economic activity, and with the United States being as dependent on foreign money, financing our deficits as we are today. Because the whole system is now interlocked on the basis of confidence in the American economy. We've been able to function --

LEHRER: Excuse me, let me stop there. The reason that confidence is important is that's what's causing the foreign investment in the first place, right?

Mr. ROHATYN: Absolutely. People have financed our deficit, if you will. People have brought in huge amounts of foreign currency and have bought dollars in order to buy American securities and Treasury bonds.

LEHRER: So now they see -- what happened? Now they see this 2.1 GNP growth rate, what is that going to say to them?

Mr. ROHATYN: Well, what they think, what they could think is that our economy could be going into a recession; that it could be less strong than it has been; that if we go into the recession, going in the door with a $200 billion deficit, all of a sudden we could be looking at a $250 or $300 billion deficit; that, as a result of the recession, we would try to inflate our way out of it and that therefore their investment in this country would be less secure. They would have a tendency to begin to pull their money out of here. The result of that could be higher interest rates at a time of slowing economic activity, which would probably be an extremely bad scenario to be looking at. And if that were to happen, you have to remember that this country was the locomotive that pulled the whole rest of the world out of recession over the last three or four years, and that countries which are huge foreign debtors, like Brazil, Argentina, Mexico, etcetera, have been able to survive mostly by exporting to the United States; and that if we slow down and at the same time our demand for credit keeps on going up, that the whole financial system would become very, very fragile. And I think those are the things that are in the minds of people all over the world as they look at our economy. Our economy has been absolutely the only locomotive that has kept the financial world from getting into real trouble.

LEHRER: Mr. Rohatyn, you about scared me to death. That's a terrible scenario you just outlined. Are there any signs of that happening today?

Mr. ROHATYN: Well, I'm not saying that that is happening today. I'm saying that I think that's what people are afraid of. I think it is a scenario that is -- it's not out of the question; it is a scenario that could happen. It's a scenario that can't be allowed to happen. However, if we go into a recession at a time when the Congress and the administration still haven't gotten together on any kind of a deficit-reduction program, and if at the same time the rest of the world gets nervous about the financial system as a result of things that on the face of them should be irrelevant -- I mean, the fact that a small institution in Miami goes bankrupt and that a few savings banks in Ohio close should not make the whole world nervous. But they do.

LEHRER: Well, why does it? Why? Why?

Mr. ROHATYN: Because of all of these other problems, which are much greater. The problems of the Third World debt, the problems of the overvalued dollar, the problem of too much debt being created all over the system, and the system being now totally dependent on continued American growth and on the continued willingness of foreign capital to finance this growth.

LEHRER: I was told yesterday that the problems of the savings and loans in Ohio were played as bigger news in Great Britain than they were in the United States in some newspapers. And that boggles the mind to the average layperson here.

Mr. ROHATYN: Well, you must remember that when you go to Europe or when you go overseas at all, people see the word "bank," they see the word "Ohio." In effect what they're translating in their mind is that you have American banks in difficulty. And for a couple of years now we've been living with the illusion that the Third World debt problems have been resolved, because a lot of these big debts were rescheduled, that the banking system was totally safe. People have never quite, however, gotten these problems out of their minds, and the fact is that they're still there. And every time something like this happens, it awakens the sort of the underlying concern for the system, and the concern is justified. That doesn't mean that we're going to have a disaster. It means that we have a very, very highly leveraged structure. And the whole thing is -- you know, "credit" is a word that comes from the Latin "to believe." It's not a science, credit is not a science, any more than balance sheets are a totally sure thing because they balance. And the moment this belief is put in question the whole system becomes shaky.

LEHRER: Is that a correct reading also of yesterday's figures on consumer confidence even here in the United States, the lowest it's been in 30 years?

Mr. ROHATYN: I think so. I think people instinctively know that you just cannot go on borrowing yourself into oblivion in the name of prosperity. We tried that in New York City; we almost went bankrupt in 1975, and we found that there's no magic to this. You just cannot borrow forever; there has to be a reckoning, or you have to do something to correct the situation.

LEHRER: In the immediate term, would you expect, for instance, the price of the dollar to start going down and begin to see that dramatically in the next few days?

Mr. ROHATYN: You know that graveyards all over the world are festooned with tombstones of people who try to predict stock markets or securities markets, and I'll try not to add my tombstone to those. I thinkthe logic would dictate that the dollar should come down over a period of time. The real question is, is the dollar going to come down abruptly to a hard landing, or is it going to come down over a period of time and find its own level gently? I think that is a question that nobody can predict. It will depend on world confidence; it will depend heavily on whether we become realistic with respect to our budget and our deficit.

LEHRER: You just got an A for avoiding the tombstone, Mr. Rohatyn. But don't go away.

Mr. ROHATYN: Thank you.

LEHRER: Robin?

MacNEIL: Still to come on the NewsHour, questions of confidence in America's banking system. Felix Rohatyn returns for a discussion with Congressman Charles Schumer and a Merrill Lynch vice chairman, John Heimann. Also a profile of a musician who specializes in the music of Johann Sebastian Bach, 300 years old today. First, because this is pledge week on PBS, we're taking a short break while local stations ask for your support. Your pledges help keep programs like this on the air. We'll be back shortly to discuss confidence and the banks.

[Pledge Week intermission] Fragile Finance

LEHRER: We move our economic focus now to the specific concern over the financial system -- the banks, several of which have been and remain in large trouble, and the savings and loans, 70 of which were shut down in Ohio last week in a crisis that remains mostly unresolved. There are those who believe a major cause of it all is deregulation of the nation's financial institutions. How it has affected the conservative world of banking is the subject of this report from California by Spencer Michels of public station KQED-San Francisco.

SPENCER MICHELS, KQED-San Francisco [voice-over]: 1933. Thousands of banks fail during the Depression. Amidst the chaos of bank runs, FDR signs the Banking Act of 1933. The law creates the Federal Deposit Insurance Corporation, the FDIC, to protect depositors. It also imposes heavy regulations on the wayward banking industry. The new rules set interest and loan rates and provide a modest yet guaranteed profit. Along with that profit comes stability, fully deserving of the public trust. The regulations work, and the industry enjoys 40 years of peace and prosperity.

That all ended in the inflationary '70s. Money market accounts, first permitted in 1971, caused a virtual run on bank deposits. Two hundred billion dollars moved out of banks and into the high-interest money funds. Unable to coipete, banks clamored for relaxation of the stringent rules set 40 years before.

By the '80s the industry had begun a process of deregulation that would allow it to go toe-to-toe with the money markets and each other, offering competitive interest rates and a variety of consumer services.

The era of federal and state deregulation has also spawned new types of financial institutions that are not banks but offer many banking services. All this intense competition for depositor dollars has shaken the industry. Seventy-nine federally insured banks failed in 1984. Ten percent of all federal savings and loans are said to be in serious trouble. That means serious problems for depositors.

BILL SULLIVAN, Money Center depositor: You know, we have been described in the news media as speculators; we have been described as little old ladies and middle-class executives who should have known better. We're just people.

MICHELS [voice-over]: Bill Sullivan is one of the 1,200 depositors at the Western Community Money Center, not technically a bank, but a thrift and loan that failed. It was closed by the state of California in April of 1984. Forty thousand of the $100 million in assets seized by the state belonged to him. The past 10 months have changed his life. Sullivan has become the point man for a group of depositors fighting to get their money back.

Mr. SULLIVAN [at meeting]: Thank you very much, Norm. I appreciate the opportunity to appear before the Kiwanis Club to talk about the Western Community Money Center.

MICHELS [voice-over]: What irritates him most is the notion that somehow he is to blame for the loss of his money.

Mr. SULLIVAN: Well, I ask you now, think about it: what was the risk? All the accounts were insured to $50,000. It was closely regulated, as the information told you, by the state of California. As long as you didn't put in over $50,000 there was no risk. And the big reward: an extra percentage point. This was a bank. I went in there and I was told it was the bank of the future.

MICHELS [voice-over]: Though not a bank, the Money Center, headquartered in the affluent suburbs east of San Francisco, functioned like one, offering checking accounts and other services in a variety of locations around the Bay Area. With interest rates of 8% on checking accounts, the Money Center attracted depositors quickly, a bit too quickly.

DOLE LUCAS, California Department of Corporations: They wanted to become the largest financial institution in California. They just didn't -- they were more concerned with taking funds in than they were putting them out in quality loans.

MICHELS [voice-over]: In April, after a full year of investigation by the California Department of Corporations, which regulates thrift and loans, the center was closed, its finances insolvent, its assets seized. Depositors were in for another shock: their money was insured by the state-regulated Thrift Guarantee Corporation, and they expected quick repayment. According to the rules, assets had to be liquidated before depositors could get their money back. Originally told it would take four months, they soon learned it might take five years. Confused and outraged, the depositors accused the state of dragging its heels, and tried public demonstrations to push their point. Retired couples dominated the picket line, couple like Ebba and John Terry.

EBBA TERRY: We don't understand why we just can't have it back.

MICHELS [voice-over]: The Terrys had on a friend's advice deposited John Terry's $100,000 retirement fund in the Money Center.

JOHN TERRY: I talked to a man at the Department of Corporations several times. He finally told me, he said, "Well," he said, "Why don't you just consider it lost?" I said, "What do you mean? Take a loss for $100,000?" "Yes, take a loss."

Mrs. TERRY: We were like second-class citizens or something.

Mr. TERRY: That's right.

Mrs. TERRY: "People who should have known better" -- that's what they kept telling us. "You should have known better."

Mr. LUCAS: They had to realize there must have been a difference between the Money Center and other financial institutions, because it was paying higher rates than anyone else in the area.

MICHELS [voice-over]: The timetable for repayment, the state says, is set by statute, so their hands are tied. There is pending legislation in the state capital in Sacramento that may provide emergency loan relief. But for those waiting for their money, the experience has been a nightmare.

Mr. SULLIVAN: And we are being put through the equivalent of a Franz Kafka novel. I mean, I remember in college I had to read one of those books, and I couldn't believe it. I said this would never happen in America. Well, it is happening in America and it's happening right here in California.

MacNEIL: The California legislature will soon vote on a plan to guarantee a $66 million loan to pay off depositors of the Money Center. While supporters are optimistic that the plan will pass, most agree that it will be at least a full year from the original closing date before anyone receives his money in full. We turn now to a member of Congress who shares consumers' concerns about the soundness of the banking system and the safety of their deposits. He is Democrat Charles Schumer of New York, a member of the House Banking Committee.

Congressman, we've seen in Ohio people very worried this week. We've seen the depositors in California worried. Is the banking system of this country in trouble?

Rep. SCHUMER: Well, it's in trouble in the long run if things don't change. Is there a problem for people across America who have their money in banks and thrifts and other institutions immediately? No. But the basic problem is that the banking system, which for 50 years was the most stable system in the world -- we created a miracle since Franklin D. Roosevelt's time, that is, confidence in a banking system that was broad and deep. That confidence is being eroded in the last five years.

MacNEIL: Why?

Rep. SCHUMER: And the reason why is basically that the banking world has changed, and deregulation has hit that world. Banks have to pay much more for money. It's an advantage to consumers to be able to get, when you put your money in a bank, no longer 0% or 5%, but to get eight or nine percent. But that puts a burden on banks. They have to find investments that will pay them 10 or 11 percent so they can make money on your deposits. And so what happens is they start placing their money less carefully than they used to, in higher-yielding investments. But higher-yielding investments yield more because they're risks, and sometimes those risks create real problems. That's what happened in Ohio; that's what happened when banks put too much of their money in oil and gas loans; that's what happened out there in California. When banks take risks, more banks get in trouble. And the greatest worry I have is not the individual -- individual banks that go under -- although I feel very deeply for the depositors and think that they should be reimbursed in full; but rather that the confidence erodes. A banking system without confidence is like a human being without any ability to survive.

MacNEIL: Is greater risk-taking by banks making loans and by people making deposits in more aggressive banks, is that an inevitable price of deregulation?

Rep. SCHUMER: Well, partially yes. I mean, certainly a bank can no longer issue a mortgage at 6% when it's paying 8% to depositors who are putting their money in. But it can be regulated, it can be modified. The fact that a bank in Ohio, the Home State Savings, whose collapse led to this whole crisis, was allowed to have one third at minimum, probably more than one half, of its deposits in one place, should never, never happen again.

MacNEIL: And the state regulators in your view shouldn't have permitted it to do that, they should have overseen it?

Rep. SCHUMER: That's correct. They shouldn't have. And in fact, if it was a federal bank, under the new rules that have been promulgated by the FSLIC, it couldn't have.

MacNEIL: Federal Savings and Loan --

Rep. SCHUMER: Federal Savings and Loan, correct.

MacNEIL: -- Insurance Corporation. What do you think needs to be done to restore confidence?

Rep. SCHUMER: Well, I think several things need to be done to restore confidence. The first thing that should be done is gradually, the nonfederal insurance system should be taken over by the federal government. The federal system is much deeper and wider. The collapse of the largest bank or S&L in the federal system could not bring the whole insurance system down. The second thing that has to happen is that the auditors have to start doing their job better. It was much easier to audit a bank 20 years ago, because there were a routine number of investments, you didn't put money in all these new go-go things that bankers are involved in these days. And so auditors can't do what they did 20 years ago. It has to be tougher, it has to be more regular, and in fact there should be more disclosure to the public and to the authorities about where a bank has its money and where it moves its money. Third, the very regulators who should be auditing -- a few of them, not all of them -- but a few of them are pushing banks into new fields that are very risky. Banks should not be allowed to own real estate. That's a risky field. Banks should not be doing things that are by nature very, very risky. And that form of deregulation ought to stop.

MacNEIL: Okay, we'll come back. Jim?

LEHRER: A different perspective now from John Heimann, vice chairman of Merrill Lynch Capital Markets in New York City. He is a former U.S. comptroller of the currency and chairman of the Federal Deposit Insurance Corporation.

Mr. Heimann, first, do you agree that confidence in our financial system is eroding?

JOHN HEIMANN: No, I don't. We've gone through a period of time in which we've had extraordinary happenings in the banking system. The Ohio situation recently; a Financial Corporation of America in California about three, four, five months ago; Continental Illinois this summer, and yet the basic stability of the system continues. Now, the public has not run the banking system, because they are convinced, and I think rightly so, of the validity and the protection of the deposit insurance activities of both the Federal Savings and Loan Corporation as well as the Federal Deposit Insurance Corporation.

LEHRER: The system is in no trouble, no danger at all?

Mr. HEIMANN: The system, you mean the banking system?

LEHRER: Yes.

Mr. HEIMANN: If you mean by danger, is it in danger of collapsing or failing or creating chaos, I do not think that that is even vaguely a reality at the present time. It's true, however, that certain institutions, banks, will not be well run in this new age. The one that Congressman Schumer was talking about, deregulation competition. Again, the faults in these failures that we've been discussing have not been faults of interest rate, not faults of monetary policy, but the fault of poor management on the part of individual institutions who for one reason or another did not act prudently in the management of the bank.

LEHRER: What about the congressman's point that there should be some re-regulation to prevent banks from taking these risks, too many risks?

Mr. HEIMANN: Well, I think we have plenty of regulation now that banks shouldn't take risks. It's, again, it's a form of what do we mean by risks?

LEHRER: He says real estate, for instance. Let's use his example.

Mr. HEIMANN: Well, I happen to agree with him on that example. I don't think banks should be in the real estate business. But the failures of the banks up until now have come from investments in commercial and industrial properties -- energy, farm loans and in government securities. So it's really how you manage your risk that's the critical factor in terms of banking, not what you invest in -- that's all part of the management of risk.

LEHRER: What about his second point, that -- and you're a former bank regulator -- that the bank regulators are not doing their jobs properly, particularly the auditors in watching what in the world is going on?

Mr. HEIMANN: Again, I don't really agree with that. I think that the bank regulators, considering the resources at their disposal, do a pretty good job. They can't run banks; they're not supposed to tell managements what to do. Their function really is a supervisory function, much like a traffic cop. And in our system, which is so big and there are so many people in the banks, not all of whom are brilliant managers, that some make mistakes. And of course one of the great problems that we have, we still have people in the system who embezzle, which is the cause of many of the problems that we have.

LEHRER: But it's your position that for the average person watching this program tonight, who might have some money in an average bank or a savings and loan or any other kind of thrift institution, has generally nothing to worry about?

Mr. HEIMANN: That is my position, and it's proven to be basically correct up until now, with the possible exception of Ohio, which was a state-insured system. And I agree with the congressman. I believe that what happened in Ohio is the death knell for state-insured systems, that they'll all be federally insured in the years to come.

LEHRER: Thank you. Robin?

MacNEIL: Felix Rohatyn, bring you into this. Where do you come down as between these two on the degree of trouble that the banking system is in as a result of deregulation?

Mr. ROHATYN: Well, I would agree with John that the average depositor in a bank, in one of the U.S. large banks, doesn't have to worry about his money. I don't think that means that the banking system is a riskless kind of a proposition. The average depositor doesn't have to worry because when the Continental Illinois started going under, the federal government not only guaranteed all of the depositors of the Continental but said it would guarantee all of the depositors of all 12 largest banks in this country, which as I recollect is a commitment of about a trillion dollars. Now, I don't think that commitment is going to have to be called upon. On the other hand, if you look at the assets and the liabilities of the banking system, you find enormous credits made to structures that are not necessarily creditworthy, structures called Nigeria or Mexico or Brazil or Argentina, in amounts that total all over the world now a trillion dollars for the world's banking system. And the world's banking system probably has capital of, I don't know, $250, $300 billion. So we have --

MacNEIL: A trillion dollars is a thousand billion dollars.

Mr. ROHATYN: A thousand billion dollars. It's a great deal of money. And we are on this kind of treadmill where we have to keep lending more and more money to these countries or to these borrowers in order to maintain a facsimile of solvency, in order to maintain the capital of the banking system.

MacNEIL: Let's come back to that huge world overview in a moment. On the practical business of confidence in American banks -- if state insurance systems were done away with, as Mr. Heimann suggests is going to happen, and everybody's going to be insured federally, wouldn't that take care of the problem from your point of view?

Rep. SCHUMER: Well, it would not from my point of view. I agree with Mr. Rohatyn, I agree with Mr. Heimann, that a bank -- that a depositor today does not have to worry. But I'm worried that five years from now they may have to, whether they're in the federal system or the state system. And I'm worried because of the things that Mr. Rohatyn pointed out, the huge amounts of assets in foreign countries. I'm also worried because the banking system has undergone such a dramatic change that in many ways it was not prepared for. Bankers never used to have to be involved in this world of go-go banking, of taking higher risks, of moving their money in and out so quickly. Banking was basically a business where the money came in at a certain percent and it went out in a traditional way at a higher percent, and the banker made the spread. These days that's not the case. And one of the problems we have is that as you make the transition from the old world to the new world, banks go under. Now, when banks go under, that's not the end of the world unless people think it is.

MacNEIL: But if you're going to deregulate, aren't you going to introduce real competition just like among airlines, with the possibility that some are going to go under if they don't make it? Isn't that the corollary of deregulation, Mr. Heimann? And that means someone's taking risks.

Mr. HEIMANN: I think we have to look at this as a river of change. We've gone from a protected financial system to one that's changing to serve the consumers what they want in this country -- competitive rates of interest, products and services. In that process, not all of the managers know how to manage the banks. And so there will be losses of institutions. It's how we manage those institutions which are --

MacNEIL: So it's consumer beware, in other words.

Mr. HEIMANN: No.

MacNEIL: The consumer has to look more closely now at the banks or the institutions where he puts his money, and he's got to take more responsibility on himself? Is that the answer?

Rep. SCHUMER: You know, when the Ohio banks went under -- I've seen some of the depositors there, and they said, "But it said "insured' on the door. I thought all my money was insured." The gentleman on the tape in California said the same thing. Consumers should be more careful than they were in the past. They should look more carefully. And furthermore there should be a warning to them. If a bank is coming and saying if you put your money here, you're going to get two or three percent more interest than most of the other banks, they ought to scratch their heads and say, "Why is that? Maybe that bank is putting its money in a place it shouldn't be."

MacNEIL: You [Mr. Heimann] said no re-regulation needed. Did I understand you correctly? Do you think that some re-regulation is needed on the banks, some tightening up, some partial withdrawing of this freedom?

Mr. ROHATYN: Something is needed. What is needed is very difficult to say. I think technology has created a reality where we've gone from the financial cavalry to financial Star Wars in 10 years, 15 years because of the computer, because of [unintelligible], because of satellites, because of the ability to push a button in Hong Kong and transfer $10 billion in 30 seconds. Because everybody is creating new financial instruments which enable people all over the world to speculate with each other, and to speculate in huge amounts with very, very little down payment. Now, this is a worldwide -- this is a worldwide disease. This isn't just an American disease now. I think we have to take the lead in whatever happens, but whatever happens has to happen both domestically and internationally.

MacNEIL: You heard Mr. Rohatyn's scenario earlier of what could happen, a very gloomy scenario of what might be in the minds of some people reacting in a jittery way to what happened in Ohio. How likely are we to see another Ohio or another Continental-like failure in the banking system in the next year or so? And how likely is that in turn to add to real jitters in a flight from the dollar, do you think?

Rep. SCHUMER: Every time you have a new failure, jitters increase. The people who withdrew their money from the bank in Ohio had heard of Continental Illinois, and their confidence in the system was a little bit shaken even before Ohio happened. It is my worry that there will be future failures like the one in Ohio, like Continental Illinois in this brave new world of deregulation, and unlike in the airline industry or the trucking industry where deregulation occurs, we cannot afford those kind of jitters to occur in the banking system, because it's the lifeblood of our economy.

MacNEIL: How probable do you think another failure is, adding to the the jitters and a possible flight from the dollar?

Mr. HEIMANN: I think that there will be continued disappearance of banks, and I think jitters will diminish as the public begins to understand that they are protected by deposit insurance. In other words, I think the jitters have been less and less each time, rather than more and more.

MacNEIL: Gentlemen, thank you all. We have to leave it there. Christopher Hogwood: Going for Baroque

LEHRER: For those of us who know and hum the music of Johann Sebastian Bach, today is a big day. It is the 300th anniversary of his birth. He is now considered one of the greatest composers of all time, but back in the 1700s he was known in his home town of Leipzig, Germany, as a church organist who wrote a lot of religious music on the side. It was only 100 years later, in the early 1800s, the St. Matthew Passion, the Brandenburg Concertos and the rest of his music became recognized for its greatness and its durability. Robin?

MacNEIL: We mark this anniversary with a profile of one of Bach's best-known interpreters, Christopher Hogwood, a British conductor who's one of the best-selling classical recording artists in the U.S. He's here for Bach's birthday on a 14-city tour, and we met him in the middle of it.

[voice-over] Last week we spent some time with a British group called the Academy of Ancient Music and its conductor as they traveled through the Midwest performing Bach. At the age of 43, Hogwood is one of Britain's most active and popular conductors. Aside from concertizing around the world, he has released more than 50 records as both conductor and harpsichord soloist. Four of his albums are among the best-selling classical records in America. Hogwood is one of a growing group of musicians who believe in playing music as they think its composers intended it to be played.

CHRISTOPHER HOGWOOD: The fact that I happen to believe music sounds best as the composer meant it to be doesn't mean to say that you have to believe it. It could easily be that people decide music sounds better performed in some way that the composer never dreamt of. I nd that difficult to incorporate with my philosophy of artistic creation, but the good composer was usually right, and therefore the drastic remake of his music when he's dead and can't say anything about it, I think, is liable more often than not to invalidate what he was saying, and overinflate the position of the interpreter and to undermine the position of the creator, which I think in art is a false philosophic position to encourage.

MacNEIL [voice-over]: For Hogwood and his orchestra, playing music the way its composers intended is not only a matter of style and technique, but it requires the use of instruments that were in use at the time of the composition.

Mr. HOGWOOD: The more you try to incorporate historical evidence with modern performing styles, the more you find that what the original books tell you to do can't be done on the modern instruments. So you find progressively a barrier between you, put up by the instrument you're playing, between you and the music. And so you look around for something that won't be such a barrier, and that turns out usually to be the instrument that the writer was holding in his mind while writing his instructions for your performance.

MacNEIL [voice-over]: Hogwood demonstrated the differences between an 18th-century flute and a modern one during a "Live from Lincoln Center" broadcast.

Mr. HOGWOOD [Live from Lincoln Center]: As you can see from the two instruments here, for example, the 18th-century flute is a very simplified affair. It is wood, it has one key only, and it plays, when it plays in D-major, in this tonality [baroque flute is played]. And the modern flute, with many, many more keys, made of metal, plays in the same tonality sounding so [modern flute is played].@1 Obviously they can't exist side by side.

Mr. HOGWOOD: Everybody thinks I'm longing to find a tape recording of Bach playing his own music. This is of course just what you don't want. Because then no 20th-century enthusiast for historical performance would ever dare depart one iota from that dead and frozen performance, and that's exactly that that music was not created for. It was created to be different every time it was played. Music is a social activity, and the interpretations you come up with, certainly when it's a group, are very much a composite of your own views and opinions. That includes your own interpretation of history, plus the commitment and the views and the style of the players you're working with. And music should develop, anyway, and I think any live interpreter's performances will vary, and that's the joy of baroque music, where so many areas are left to a certain degree of free enterprise on the night.

MacNEIL: Tonight the Academy of Ancient Music plays in Pasadena, California, and ends its tour on Saturday in San Antonio. Tonight a concert they recorded in St. Paul will be aired on more than 100 Public Radio stations across the country. Jim?

LEHRER: Again, the major stories of this day. Seventeen blacks were killed and another 22 wounded by police in South Africa. The clash came during a demonstration of some 3,000 blacks. The police claim they were defending themselves from rocks; the demonstrators say the shootings were unprovoked. Secretary of State Shultz, among others, condemned the firing on the demonstrators.

In southern Lebanon, Israeli army troops killed 21 Shiite Moslem guerrillas and two members of a CBS News camera crew.

And in this country, a new flash estimate on the gross national product shows the economy growing at a surprisingly sluggish 2.1% rate.

Good night, Robin.

MacNEIL: Good night, Jim. That's our NewsHour tonight. We'll be back tomorrow night. I'm Robert MacNeil. Good night.