The MacNeil/Lehrer NewsHour

Intro

JIM LEHRER: Good evening. Three stories dominated the news this Thursday. A major U.S. bank, Continental Illinois, was saved and in effect taken over by the U.S. government. The Federal Communications Commission voted to phase out the number restrictions on television and radio station ownership, and tests turned up cocaine traces in the blood of the Amtrak employee blamed in Monday's head-on collision of two trains in New York City. Robin?

ROBERT MacNEIL: For our in-depth stories on the NewsHour tonight, we start with the Continental Bank rescue. We examine the bailout and the role of the federal government with a banking analyst, and a senator and a congressman who disagree. In Boston we talk to the United States attorney who cracked the biggest arson investigation U.S. history. Charlayne Hunter-Gault looks at Republican efforts to woo the hispanic vote. Back from the Brink: Bank Bailout

LEHRER: The federal government today became the rescuer and majority owner of the nation's eighth largest bank. The bank is Continental Illinois of Chicago, which came close to bankruptcy in May and has been on the brink of it ever since. The rescue plan came from the Federal Deposit Insurance Corporation, and involves $4.5 billion. The FDIC assumes $3.5 billion of Continental's debts, puts $1 billion of fresh money into the pot, and in exchange gets 80% of Continental's stock -- and in exchange for that, gets a new management for the bank. All of it was announced in Washington by FDIC chairman William Isaac.

WILLIAM ISAAC, chairman, Federal Deposit Insurance Corporation: The bottom line, as far as this assistance package goes, is that we have created through this transaction one of the very strongest banks in the world. If for any reason this permanent aid package should prove to be insufficient, the FDIC will commit whatever additional capital or other forms of assistance may be required. The FDIC will not -- and I want to underline not, because I've read a lot of speculation to the contrary -- the FDIC will not be running this bank. The FDIC under the agreement is given the essential rights you would expect any major shareholder to have. This is a private sector bank with a major investment coming from the FDIC, funded entirely by the banking community; not one nickel of taxpayer money is in this transaction. As soon as we see this bank get back on its feet under this new management team, the FDIC will sell its interest in this bank.

LEHRER: Back in the spring, foreign depositors withdrew billions of dollars from Continental amidst rumors the bank was in trouble. There was a temporary save by 28 other banks and the government, and since then there has been an attempt to merge it with another private bank. It didn't work, obviously, and now there's today's plan. Chairman Isaac and other FDIC officials said today it was either this way or no way; the bank would have closed. Robin?

MacNEIL: To help us understand the significance of today's announcement, we have John Lyons, a former FDIC employee. Mr. Lyons now heads his own consulting firm in New York. First of all, where does the FDIC get the $3.5 billion it's putting into Continental?

JOHN LYONS: In this case, something very unusual took place. The Federal Reserve had already advanced funds to the Continental Illinois some three months ago, and the FDIC in effect is assuming that obligation -- the obligation to ultimately repay the Federal Reserve. So it's really Federal Reserve money at this point.

MacNEIL: And where does the Federal Reserve get it from?

Mr. LYONS: Well, that Federal Reserve money is basically created money.

MacNEIL: So the money supply was enlarged by $3.5 billion.

Mr. LYONS: That's -- that's correct.

MacNEIL: Now, we just heard the FDIC say that, contrary to rumors, this is not nationalization, that the government or the FDIC is not going to run this bank. What is your view of that, because a lot of analysts are calling it nationalization?

Mr. LYONS: Well, I think it's -- it's a question of semantics, and what you mean by nationalization. I would say, since the FDIC is in fact the owner or at least the majority owner of the institution, I would say that's nationalization. I would certainly agree with chairman Isaac --

MacNEIL: Meaning that the bank and its poicies isn't going to do anything that the government doesn't want it to do.

Mr. LYONS: That's absolutely correct. At the same time, I believe him wholeheartedly that he means that the FDIC is not going to run the day-to-day activities of the bank, and I think it's -- it goes without saying that it would be virtually impossible for them to run it anyway.

MacNEIL: Was there any alternative to this?

Mr. LYONS: Well, as to the -- as to the bailout itself, I --

MacNEIL: I mean he bailout.

Mr. LYONS: I don't believe there was, and I -- I think it's terribly unfortunate that that's the circumstance.But I don't that there was a -- that there was any alternative.

MacNEIL: Why not?

Mr. LYONS: Well, we tried --

MacNEIL: What would have happened to the banking community if this had not bailed out?

Mr. LYONS: The links -- the links, bank to bank, in the world banking community are so tight that there would have been losses suffered by so many banks, and by so many institutional customers, had the FDIC followed their normal pattern and closed the institution. Those links were so strong and so tight, that so many banks would have lost money as a result of that, that you would have had in effect a domino effect to this -- to this closing. And that's what gives bank regulators and many bank analysts nightmares.

MacNEIL: Now, Treasury SecretaryDonal Regan said -- he criticized this deal yesterday, he said it was bad public policy. What lies behind that?

Mr. LYONS: It's a -- it's technicality to what exactly the FDIC did. Had the FDIC followed normal policy and had closed the Continental Illinois Bank first, and them moved it to stronger hands, if that had taken place, the parent company of the Continental Illinois Bank -- very technical -- but the parent company, it's creditors would have lost something like $1.2 billion.

MacNEIL: So this -- this bailout saved the holding company, the parent company, as well as the bank.

Mr. LYONS: It saved the holding company, and that has not been done before.

MacNEIL: And that's what Secretary Regan was complaining about.

Mr. LYONS: Yes, he was saying that we have to do this, we have to do if for banks; we don't have to do it for non-banks. And the parent is not a bank. The world, unfortunately, doesn't make those same distinctions. The world doesn't have time to sit still and say, "I know the difference between a bank and a holding company." The world doesn't know that; the world thinks that Continental Illinois is Continental Illinois, and whether it's the bank or the holding company, it's all the same.

MacNEIL: Could Secretary Regan have stopped this if he didn't like it?

Mr. LYONS: My limited understanding of what the Treasurer's -- what the U.S. Secretary of the Treasurery, what powers he has -- my limited understanding of that is that he could have stopped it.

MacNEIL: But he chose just to criticize it.

Mr. LYONS: I think -- and I would characterize that as necessary cosmetic eyewash.

MacNEIL: What do you find troublesome about the manner of the bailout?

Mr. LYONS: I'm troubled by the fact that we had to do it. I -- I fully support the fact that this bailout was absolutely necessary, and three months went by while private investors were -- were found, and given information and offered plenty of FDIC cash to take over the institution.I'm very disappointed that there was not an immediate private solution to it.

MacNEIL: What does that say, that no other private banks, including some foreign ones, which looked at the deal, didn't want it? What does that say about it?

Mr. LYONS: It says that -- that the substance of the Continental Illinois Bank was so thin that even with federal money, and even with the backing and assistance of the Treasurery, even with all of that you couldn't find a way to get an entrepreneur to take a risk.

MacNEIL: What does it say about the way federal deposit insurance -- which we all think of as protecting our own bank accounts, deposit accounts -- is working? Is this what it was intended for?

Mr. LYONS: Well, it's not what it was intended for, and frankly it's working too well. And -- in my belief, we have to see to it that it doesn't work quite this well. The world thinks that federal deposit insurance protects every large bank, and unfortunately, what happened --

MacNEIL: You mean, it will think that now as a result of this.

Mr. LYONS: Oh, I think it always did think it, and now it's sure that federal deposit insurance protects all customers and creditors of all large banking institutions headquartered in this country.

MacNEIL: And it doesn't?

Mr. LYONS: It does not. It does not by law, it does now by policy. And I think that's terribly, terribly unfortunate.

MacNEIL: Is this going to, in your view, increase regulation of banks or create a desire to increase the regulation of banks?

Mr. LYONS: I think -- I think it almost has to. I think whether chairman Isaac believes this to be taxpayer money or not, I think that's a semantical question as well. But basically the United States taxpayer is standing behind the Continental Illinois corporation, and I think that's just a fact of life. And if the taxpayer is standing behind this institution, and if this happens on a recurring basis, I think it's only natural for the Congress to day, "Give me some say, since I represent the taxpayer, in exactly what you do, Continental and other banks, in how you lend your money." And I think that is terrible, and yet I think it's the logical next step.

MacNEIL: And what do you see as the political fallout from this?

Mr. LYONS: Well, it's -- it's, I think it's going to become a political football, and that's very unfortunate, because the financial system is very fragile. But nonetheless, a very large, very, very large bank has just been bailed out, and I think that what little I know about democratic politics, I think that that will be a political football, that a very large bank has just been saved. I think also that the method by which it's been saved is going to be compared to the bailout of other companies under Democratic administrations, and I think some -- some flak will come to the effect that, "See, we do it, you do it, we all do it," when it becomes necessary.

MacNEIL: Mr. Lyons, thank you very much.

Mr. LYONS: Thank you.

MacNEIL: Jim?

LEHRER: And speaking of politics, there are those who believe the federal government should not have rushed to Continental's rescue: Congressman Jim Leach, Republican of Iowa, a member of the House Banking Committee so believes. Senator Alan Dixon, Democrat of Illinois, a member of the Senate Banking Committee, disagrees. Congressman Leach, what's your problem with this rescue?

Rep. JIM LEACH: Well, there are two problems. One is the broad philosophical one: does a large institution have the right to die? This was a terribly poorly-managed institution; it should have folded. Secondly, we have a problem of taxpayer liabilities; and let me then finall stress that you also have a problem that if you allow bad management practices to continue and then be protected, there'll be no discipline in other banks not to pursue similar bad management policies. Therefore the message is writ large, whether it be Chase Manhattan, Citicorp, and large bank in America, willy-nilly, they can be undisciplined to their stockholders because the federal government must, as this precedent sets, presumably step in again.

LEHRER: Do you read the message the same way, Senator?

Sen. ALAN DIXON: No, I don't agree at all I think it was the necessary thing to do here. The alternative was to permit Continental to fail, in which case the FIDC -- FDIC would have had a $3 billion obligation to meet. This way I believe in the five-year period we will have a wash here and maybe even a profit. I think it was the entirely appropriate thing to do. Twenty-four hundred banks in this country have investments and were at risk in the Continental; 75 would have almost positively gone belly-up if Continental had gone down.Twenty-four thousand shareholders --

LEHRER: Seventy-five other banks would have gone bankrupt, if Continental had been allowed to go bankrupt?

Sen. DIXON: That is my information, that is correct. Twenty-four hundred banks have unsecured deposits in the Continental; 75 almost assuredly would have gone belly-up. There are 24,000 stockholders in this institution; but the important bottom line I think that you ought to understand is, that if the scenario works out correctly, at the end of five years, the taxpayers of this country and the FDIC would not have lost one dime, and there's a very excellent opportunity for a profit. So we've saved a major financial institution in our state -- which is important to Iowa, may I say to my colleague, as well as Illinois -- we have saved a great many banks, we have saved the taxpayers a great deal of money, and I think we've helped a robust economy that's on the improvement in our society, and now continue to improve.

LEHRER: You take it all back, Congressman Leach?

Rep. LEACH: Oh, I sure don't. I think we've saved a few jobs at Continental Illinois. I would stress that what we have is a financial situation that is just of a logrolling nature. Money was created to bail this out; money had to come from somewhere. It came from the FDIC. We protected shareholders; that's nuts, that we're protecting shareholders. We protected commericial bond holders of the institution.

LEHRER: Now, why is that nuts?

Rep. LEACH: It's nuts because somewhere in a free enterprise society, if you make an investment, and the institution you invested in errs, you ought to lose.

LEHRER: What's wrong with that?

Sen. DIXON: Well, I think the share -- but the shareholders are still at risk. I must disagree with my colleague. There are 24,000 shareholders, they have to vote to approve this plan within 45 days. The fact of the matter is that if the -- the bank was declared bankrupt now and there was a liquidation proceeding, they'd probably do better immediately than they will under this circumstance. They have a chance for a better profit in the long run, I would agree, but I think as far as the society as a whole is concerned, what we have done here is the sensible thing to do.

LEHRER: Congressman?

Rep. LEACH: Well, if the Senator is right, then someone would have come in and purchased the bank. The fact is no one did, so the Senator is --

Sen. DIXON: Well, of course --

Rep. LEACH: -- in a free enterprise environment, it doesn't look like he is.

LEHRER: What about his point, though, that 75 -- if Continental had been allowed to die, as you say it should have been, that 75 others would have died with it?

Rep. LEACH: Well, let me make two points. Those --

LEHRER: Maybe some in Iowa?

Rep. LEACH: Those statistics might have some margin of possibility, if one assumed that all of the deposits of the bank would be no good. What we're looking at is probably a $5-billion asset bank, with $10 billion in liabilities -- assets in terms of capital structure. So, of the depositors, they would have lost probably one-third to one-fourth of what they had deposited. But that's the way it should be. If you don't have the discipline of a system where banks loan over $100,000, meaning uninsured, then there'll be no discipline that they will loan to banks that them -- that they themselves have discipline. I think that -- that any person that had over $100,000 in that bank should have been liable for potential losses, and that is the way our -- our system is set up. If we don't go --

LEHRER: In other words, everybody knows that going in, and --

Rep. LEACH: You're darn right. And I don't care if they're foreign or domestic. I disagree with something said earlier, that the world assumes that the FDIC covers everything. People with over $100,000 anywhere in the world are sophisticated. They know the laws in the United States of America, and we have only at this point in time passed in the Congress of the United States insurance for deposits of up to$100,000. All those deposits would have been covered. Then the loss would have gone to those that took the risk, not to the FDIC; and we will not have the full faith and credit of the United States government as the ultimate liable partner in this whole venture.

Sen. DIXON: Well, I think the problem with what the congressman suggests is this: that we have a financial structure in this country that depends upon the viability of our financial institutions. Now, this is no precedent; this isn't the first time that this has been done. It's been done with Franklin National, it's been done with First Pennsylvania; it's been done a lot of times before. It's done to save the financial fabric of our society; that's important to our economic recovery that that financial fabric be protected.

LEHRER: Well, what about --

Sen. DIXON: Continental is the eighth largest bank in the United States, and again let me say, 24 other -- 2400 other banks in our country are dependent upon the success of Continental right now.

LEHRER: What about Mr. Lyons' point earlier, though, that the real problem here is that it ever came to this point and -- what do you think about that, Congressman Leach, how are you going to prevent that kind of thing from happening again, and again and again?

Rep. LEACH: Well, you prevent it -- you prevent it by having prudent federal regulation. This is a regulator's failure. They let Continental get too big following imprudent banking practices, and then they stepped in and made the initial mistake stepping in, and then they had to keep going down the line. And we've had one bad regulating judgment followed by another. The way you stop it is that you require banks, and particularly the larger banks, to have a more adequate capital base, and then you toe the line, and you say if a bank makes a mistake, it has the right to fail. This principle, this precedent -- and there is some analogies but no precedent -- what we now have is a federally-controlled institution; that has no precedent in a bank of this magnitude. We've had 28 bank failures this year. All of them had been -- 28 failures of banks under $170 million.Now apparently, if you're over $10 or $20 billion --

LEHRER: Then the government'll --

Rep. LEACH: Then the government will stop it.

Sen. DIXON: But, of course, let me say this. In the first place, the two men that have been selected to -- to direct this operation, John Swearingen, who will be the chairman of the holding company, and Bill Ogden, the chairman of the bank, are two of the outstanding men in this country with international reputations. I know John Swearingen personally; he's one of the finest businessmen and the finest people that I have ever met. So the federal government --

LEHRER: What's the point of that, I mean --

Sen. DIXON: The federal government isn't going to run this bank; those men are going to run this bank. The federal government has an interest in this bank; it has that as a consequence of its investment in the institution. And I want to say that I --

LEHRER: You don't agree with John Lyons, though, that -- are you as a member of the Congress going to sit back and let John Swearingen and Mr. Ogden do anything they want to?

Sen. DIXON: Oh, of course not, but no other bank is permitted to do that, either. And I want to support what Congressman Leach has said insofar as the regulatory people are concerned. I am satisfied that there were made some mistakes in the past. There were some mistakes by operators of this bank in the past, but we're not talking about the past. We're talking about what we do right now with an institution that would have gone under had we not done what we did do.

LEHRER: Let's bring John Lyons back in on this. Do you agree that this was actually a failure of the regulatory -- of the regulators?

Mr. LYONS: Well, I think -- I think it was partially a failure of the regulatory system, yes, I do believe that.

LEHRER: That the FDIC just let this bank get overextended and didn't draw the line soon enough.

Mr. LYONS: Well, technically -- technically it was not the FDIC. They would not be the direct regulator, but -- but technically it's a different agency, it's the agency under Secretary Regan.But in any event, it's --

LEHRER: What is the agency?

Mr. LYONS: Well, it's the controller -- it's the United States Controller of the Currency.

LEHRER: Controller of the Currency, yes.

Mr. LYONS: And it's endemic to the whole system. It wasn't peculiar to Continental. But I would agree with -- with Mr. Leach, I would agree almost entirely with Mr. Leach, as to the necessity for re-instituting discipline in the system. I disagree completely that this particular case could have been avoided. I think the FDIC absolutely had to do what they did today. I fear that nothing is being done to prevent this from happening in the future, and I think the discipline is totally lacking.

Sen. DIXON: Well, I think that's the point entirely. I agree with my friend Congressman Leach about the fact that some mistakes were made here, but I also share the view of Mr. Lyons. We are dealing now with hard reality, with what we have to do right now with this situation. Now, for the future, I think that the members like Mr. Leach on the Banking Committee in the House and Alan Dixon on the Banking Committee in the Senate have to take into consideration how we're going to improve the system, there's no question about that.

LEHRER: I know; what is being done, Congressman, to make sure there's not another Continental Illinois incident? And incident is a rather strong word -- or, weak word, but go ahead.

Rep. LEACH: Well, there are some -- some efforts in Congress -- and frankly. Congress is a weak institution in this whole environment -- to stress that banks have to raise capital the old-fashioned way, to strengthen their capital base. In my state of Iowa, the average bank has a 10% capital base to deposits, where deposits and asserts. In the large banks, it's 5%, it has been less; and if you really discounted their weak loans, maybe down to zero in some of the larger banks. I think it's time the large banks recapitalized in a substantial way.They don't want to because it dilutes their stock; well, heavens to Betsy, we in the government don't care about stock dilution, we care about strength of the system. The greatest potential re-assertiveness that can be applied to banking would be recapitalization of our larger over-extended banks at this time.

LEHRER: You agree, John Lyons?

Mr. LYONS: Well, not -- not completely. I think capital has a very, very important part to play in this, but I think -- I think a much more important part has to do with the deposit insurance system. I think the capacity of a Continental to buy the kind of money that it had bought over the past several years, the capacity to buy that money is --

LEHRER: What do you mean, buy that money?

Mr. LYONS: Well, most of the money that -- most of the funds that Continental would loan, it bought from banks that -- domestically and foreign. So the capacity to buy that money is a function of this cloakof federal deposit insurance. Believe it or not, I think the world believes that all banks are fully insured -- at least large banks in this country, are fully insured. If that's the case, then a Continental or anyone else could buy money at will, because the suppliers of the money think it's fully insured. It's that is the problem.

LEHRER: Then, there's no restraint on -- there's no restraint on anybody.

Mr. LYONS: There's no restraint. Bankers years ago had two problems: collect your loans, which is always a problem; but the second problem is keep the money flowing that -- that produced the loan. And with that major problem of where is the money coming from and how long will I keep it, the cloak of deposit insurance destroys all of that. You'll always have it.

LEHRER: Yeah. Congressman Leach, let me ask you finally, do you -- are you or any other members of Congress going to make an attempt to block this Continental Illinois move?

Rep. LEACH: Oh, the move is a fait accompli. Congress in a sense by passing the Federal Deposit Insurance Act, and the Federal Reserve acts, has given regulators extensive authority. And so what we have basically, are three regulators meeting with banking officials to determine the outcome of a very large endeavor. And I would only stress, this is a larger bailout than Lockheed, than New York City, than Chrysler combined. The decision was made by three regulatory officials, and so what we've done is that Congress -- and this is a classic situation -- has passed authority to others. We in Congress may complain a bit, but this is absolutely a fait accompli --

LEHRER: It's done.

Rep. LEACH: And so it's a done deal.

LEHRER: Congressman, thank you. Senator Dixon, thank you. Mr. Lyons in New York, thank you. Robin?

MacNEIL: The Federal Communications Communications Commission today took a major step toward deregulating the ownership of radio and television stations. In a four-to-one vote, the Commission raised the limit on the number of broadcast properties one person or a company may own from 21 to 36, and it ruled that by 1990, unless Congress intervenes, all restrictions will disappear. At present one owner may have only seven televisions, seven FM and seven AM radio stations. Today's ruling lifted that to 12, 12 and 12. FCC chairman Mark Fowler said the repeal of the old rule might let other companies than ABC, NBC and CBS form a network.

Still to come on the NewsHour tonight, in Boston a federal prosecutor tells us more about the largest arson case in U.S. history, and Charlayne Hunter-Gault looks at the way Republicans are wooing the hispanic vote.

[Video postcard: Wahweap, Arizona]

LEHRER: Drugs may have had something to do with Monday's head-on crash of two passenger trains in the Queens section of New York City. Federal Railroad Administration head John Riley told a Senate committee, laboratory tests came back positive for cocaine on one employee, the person who operated the stop signal on the track involved. It was the failure of a northbound New York to Boston train to stop that caused the collision with the southbound train. One person died and 125 others were hurt in the crash. Here's part of what Riley said today.

JOHN RILEY, Federal Railroad Administration: I do however have privy to a urinalysis and the backup urinalysis test that was performed on the individual who hand-operated the signal. And that test has come back positive for cocaine in small amounts. Now, Mr. Chairman, it is very difficult to evaluate the potential impact of that test, and I want to be very, very clear in saying that. We have found small levels of a cannabis derivative. They are so slight, and so small as to raise serious doubts that they could have impacted this accident. We have, however, detected the presence of cocaine -- not in large amounts, and we simply do not have enough data yet to determine whether that cocaine usage occurred at a time near or contemporaneous with operation.

Sen. JAMES EXON, (D) Nebraska: Is alcoholism in crews and drug use by crews in your opinion one of the major factors for this rash of accidents that we've had?

Mr. RILEY: It is very probable that this year, in this string of accidents, alcohol has been a factor, or some drug abuse has been a factor. My view of the industry as a whole is this: I don't think that the use of alcohol and the use of drugs in the railroad industry is any greater or any lesser than any other industry. It's a societal problem. The difference is, that when a lawyer uses drugs he may have a personal problem; an engineer may threaten the lives and safety of many, many people. I want very much to emphasize to the committee that we are not yet at the point where we can assign a cause to any of these recent accidents, much less the New York accident.What I've shared with the committee this morning are specific data that we know; I do not characterize them. Many more pieces of data are going to come out in the months ahead, and we certainly defer to NTSB for ultimate findings.

LEHRER: Later in the day, Amtrak formally blamed the signal operator for the New York crash, saying he mistakenly allowed the northbound train onto the same track as the southbound train. The signalman has been charged with violating Amtrak rules, and has been suspended from his job pending the outcome of an investigation, which is required by union rules. Robin? Arson Ring Uncovered

MacNEIL: Our next story comes from Boston, where federal authorities announced yesterday they had solved what they called "the single largest arson case in American history." They arrested seven people who were said to be part of a larger group. The authorities said their motive was to scare the public into supporting a larger budget for the city's fire and police departments, and to drum up business for a private security firm. One of those arrested was a Boston fireman, and several others had applied to work as firemen. In all, the group is suspected of setting some 163 fires, and helping to create Boston's image as the nation's arson capital. Here to elaborate on the case is the United States attorney who headed the prosecution, William Weld. He's with us from public station WGBH in Boston. Mr. Weld, tell us more about why these people -- why you believe these people did this?

WILLIAM WELD: Well, the -- allegation and indictment is that the principal motive for most of the fires was to dramatize the need for more fire fighters and public safety personnel in the greater Boston area. There had been a cutback following a state budget-cutting resolution in 1981. There'd been a cutback in the number of firefighters in the city of Boston, and as you indicated, a number of these defendants arrested recently either were firemen or desired to become firefighters.

MacNEIL: Have they all -- have they all confessed to this?

Mr. WELD: Oh, no, the defendants have just have been charged. We're at the -- we're at the indictment stage.

MacNEIL: I see. The -- I wonder whether you believe that that was the motive. I mean, traditionally in arson, somebody benefits financially, through insurance claims or something.

Mr. WELD: Well, you're right. This is not a typical arson case in that ordinarily we would have a torch hired perhaps by an owner through a middleman to burn a building for -- for profit through a phony insurance claim. In this case, you had allegedly a group of eight people who all knew each other -- a horizontal conspiracy, if you will, rather than a vertical one, so that once we got inside the conspiracy and were able to talk with any of the members, the whole structure crumbled.

MacNEIL: How did you get inside the conspiracy?

Mr. WELD: The case -- the case was cracked by agents of the Federal Bureau of Alcohol, Tobacco and Firearms, which is part of the Department of the Treasury. Since this rash of fires in 1982, the Bureau of ATF made the Boston arson problem a national priority, and they had a squad of 10 agents working on the case fulltime. They were working round the clock, sleeping with scanners by their bedside, they would go out to the fires and get there as soon as the sparkies -- these defendants in this case are sparkies, they are fire buffs, they like to go to fires -- and the break in the case came in November of 1982, when a Boston police officer was seen at the scene of one of the fires, captured by a television camera, as a matter of fact, waving his pistol, his duty pistol, in the air. The ATF agents went to interview him at his house, and while they didn't get any information from him orally, they noticed what proved to be a stolen fire alarm box on his mantelpiece. And from that moment he became a lead suspect, and that was the lead that eventually panned out.

MacNEIL: You said a group of eight, but only seven people have been arrested, as I understand it.

Mr. WELD: There was another defendant who was arrested earlier this year who has already been sentenced to 12 years in federal prison for his part in this conspiracy. The leniency of the 12-year sentence reflected certain contributions that he has made to the government's case.

MacNEIL: Are more arrests expected?

Mr. WELD: Related arrests are expected. This particular ring we think, these eight people, wraps it up.

MacNEIL: Does that mean that the arson problem in the Boston area is over?

Mr. WELD: Well, it's not as bad as it was in 1982. When you're talking over 160 fires, that was an appreciable percentage of the problem which earned Boston the name of arson capital of the world back in 1982.

MacNEIL: What was the cost of that rash of fires?

Mr. WELD: The fires charged in this indictment, the direct cost was $22 million. We think that's a conservative estimate. That does not include the cost to the public of the response required by the firefighters or the opportunities lost of fighting other fires.

MacNEIL: And did -- if the allegations are correct, and that was their motive, did they succeed? I mean, was the fire force enlarged in Boston as a result of their efforts?

Mr. WELD: The fire force was eventually increased from the lowest level to which it was cut back, but who's to say why it was increased. That was played out in the political arena.

MacNEIL: How did they operate, this ring, do you believe?

Mr. WELD: Well, the indictment charges that they selected sites around the city, they began by setting small fires in dumpsters or commercial trash containers. When that did not excite the desired degree of public attention, or frankly, fear, they moved on to vacant structures and from there to factories, offices and even a couple of churches. It's alleged in the indictment that the defendants or some of them would prowl the city in their private vehicles, which they referred to as cruisers, to select sites for arson.

MacNEIL: Mr. Weld, thank you very much for joining us.

Mr. WELD: Thank you.

MacNEIL: Jim?

LEHRER: It is only July, but it continued to feel like fall today in presidential campaign terms, at least, as President Reagan was out there hustling votes again. His first stop was in the South, in Atlanta, where he made a direct pitch for those who once were or still are Democrats.

Pres. RONALD REAGAN: I want to put out my hand and let you know that if you're starting to feel that your party has abandoned you, then we're holding out a hand and asking for your continuing help. We can't do it without you. [applause] I'll tell you how George Bush and I feel about the South: we won't write it off, we won't kiss it off, or try to buy it off. The South is worth fighting for; the South is worth listening to.

LEHRER: The President's next stop was in a working class area of New Jersey, where he pushed family values in an Italian-American community not unlike the one nearby that spawned Geraldine Ferraro. Mr. Reagan gave his administration high marks for defending against the spread of communism, especially in the Caribbean area.

Pres. REAGAN: In the past four years, not a single country has fallen to communism, and that in itself makes it a safer world. But one -- [applause] None have fallen to communism, but one nation has been set free from the clutches of Fidel Castro. I'm talking about Grenada. [applause]

LEHRER: Meanwhile, on the other side, only the Ferraro end of the Mondale-Ferraro ticket was on the campaign job today; former Vice President Mondale was still fishing and resting on a lake in Minnesota. But Congresswoman Ferraro, his running mate, talked to reporters in Washington about the campaign that lay ahead. She said she expected the Republicans to wage a nasty campaign, but added that one of her earlier races for Congress had prepared her for this one.

Rep. GERALDINE FERRARO, Democratic vice presidential candidate: In 1978, I used to kid about our campaign, because it was a very nasty, personal campaign -- though my opponent would walk around and say that it isn't so. And I used to kid and say thank God it was never reduced to issues. I have a feeling that that's what's going to happen this time round, especially when we hear both President Reagan and Vice President Bush kind of sidestepping the issue of debate. Lest anyone think that I did not expect that to happen, let me tell you that between the night that John Riley came out and spoke to me in San Francisco, and the afternoon at 4:30 when I received a call from Fritz Mondale, I called up my husband and said, "John, it looks as if it's going to happen. You know it's going to be a rerun but on a bigger scale than 1978 with personal attacks on us." And my husband said, "Quite frankly, Gerry, I'm not willing to let you give up any opportunity like this. We'll get through it." And we will. So I'm just hoping we will eventually be able to focus on the issues, because I think that's important to the American public.

MacNEIL: The tax increase issue that has become a focal point in the campaign has produced differences not only between Republicans and Democrats, but among Republicans themselves. Robert Dole, Republican chairman of the Senate Finance Committee, today criticized Republicans for trying to write a no-tax-increase plank in the party's platform. The Senator added that in saying he has no plans for a tax increase next year if re-elected, President Reagan was not slamming the door.

Sen. ROBERT DOLE, (R) Kansas: You know, he didn't foreclose responsible revenue action.He just said he wasn't going to increase individual rates.He'd like to lower those rates, and I agree with him. But he did indicate base broadening. The President's not going to -- and there are some in my party who would say no taxes of any kind any time. They'd like to put it in the platform which I think would not be responsible thing to do. He obviously understands that if everything else is considered, and we've still got high interest rates and a deficit, he may have to look at some revenue changes.

MacNEIL: Meanwhile, the Secretary of Health and Human Services, Margaret Heckler, estimated today that President Reagan's offer to Social Security recipients could cost $5 billion. In his news conference Tuesday night, the President said he would ask Congress to grant people on Social Security a cost of living increase this fall even if inflation fell below the 3% cutoff rate now provided by law. Ms. Heckler said the offer was a gesture of fairness to senior citizens not politically motivated. The Republicans, meanwhile, are not passing up the chance to reach out to minorities. Last night, hispanics were the target, as Vice President George Bush spoke to the National Council of La Raza, a nationwide civic organization representing Hispanic-Americans. Charlayne Hunter-Gault has more. Charlayne? Courting Hispanics

CHARLAYNE HUNTER-GAULT: Robin, after two days of repeated jabs at Walter Mondale and Geraldine Ferraro, Vice President Bush struck a different chord last night. He spent his time before the crowd of close to 1,000 hispanics singing the praises of the Reagan administration's policies, particularly as they have helped dispanics. In what may have been a curtain raiser on how Republicans plan to woo the hispanic vote, the Vice President said this administration was "true to the heart of the hispanic vote." He went on to cite figures showing how in just two years economic growth stimulated by the administration had benefited all groups, including hispanics.

Vice Pres. GEORGE BUSH: Income of American working families has risen, the first time that's happened in almost 10 years. And savings are once more on the rise, and the economy is expanding faster than anyone, than any of us predicted -- 10.1% in the first quarter, 7.5 in the second quarter; last 19 months more Americans, 6.7 million in the last 19 months found work, more Americans in that time, more than at any time in our history; 107.4 more Americans at work now than at any time in the history of this country. And this recovery is reaching way out across traditional barriers. For example, since it began, more than 650,000 hispanics have found work, and for just the first half of this year, almost 5m% of all hispanic adults have been holding jobs, a figure close to a historical high.

HUNTER-GAULT: Wooing the hispanic vote may prove to be a big challenge for Republicans, since hispanics voted Democratic by a 2-1 margin in 1980. Hispanic Republicans say they will do as well as last time with conservative Cubans in Florida, but they also predict gains among Mexican-Americans in the key states of Texas and California. Democrats of course disagree. Here to assess George Bush's claim that Reagan policies have helped hispanics and therefore will help Republicans with hispanics at the polls, we have Fernando DeBaca, co-chairman of the Republican National HispanicAssembly, an arm of the Republican National Committee. And in Denver we are joined by Colorado State Senator Polly Baca, a vice chairman of the Democratic National Committee. Coincidentally, our two guests are distant cousins who happen to find themselves on opposite sides of the political fence. Starting with you, Mr. DeBaca, if that Bush speech was a curtain raiser for wooing hispanic voters, how do you think it's going to play?

FERNANDO DeBACA: I think it's going to play very well. It already is, we're seeing results in our efforts in Texas and California and In Florida, as well as in the Midwest, where we've been very active.

HUNTER-GAULT: What kind of result?

Mr. DeBACA: We're seeing a -- an increasing interest on the part of local hispanic leaders in the campaign, people are coming forward, volunteering their efforts for the President, and we're looking forward to their active involvement in the forthcoming months.

HUNTER-GAULT: Ms. Baca, what's your assessment of that curtain raiser as a potential woo for hispanic voters?

POLLY BACA: Well, I think Vice President Bush has to recheck his figures. You know, hispanics were at an 8.2% unemployment rate in 1979, and during the Reagan administration we had fluctuated between 10 and 14% unemployment. We have never gone below 10% and I believe right now we're some place between 10 and 12%. And certainly that is not good for hispanics, it's not good when we don't have jobs.

HUNTER-GAULT: Well, then how do you respond to Mr. DeBaca who just said that what he had to say is going to play very well in the hispanic community?

Ms. BACA: I disagree totally. Quite frankly, what we found is that we have more and more hispanics recognizing that their self interest is with the Democratic Party. And that's because they have suffered under the Reagan administration. They have been hurt more by the Reagan policies than any other president in my lifetime. Reagan has proven to be the most anti-hispanic president we've ever had. All you have to do is take a look at the programs that he has proposed, and the cuts that he had inflicted upon hispanic and those programs that help them work and get educated, et cetera.

HUNTER-GAULT: Mr. DeBaca, how do you respond to that?

Mr. DeBACA: Well, I couldn't disagree more with what's being said. I've seen the state of hispanics across the nation, particularly small business people. Hispanics involved in business reacted very, very positively to the President's initiatives in that area, many more jobs are being created for hispanics throughout the country, particularly in those states where hispanics are large in number. California, Texas, Florida continue to lead the way in the creation of new jobs for Hispanic-Americans. Hispanics are also excited about the President's action with regard to bilingual education, which just took place here in the last 48 hours. The President has been very supportive of the bilingual education effort. The President, however, is most concerned about mainstreaming hispanics and getting them off the dependency cycle, which the Democratic Party has perpetuated over the years.

HUNTER-GAULT: Ms. Baca?

Ms. BACA: Yes. I might point out that President Reagan has been trying to cut bilingual education by as much as 40% in previous years during his administration. Also, in 1982 he forced -- his policies forced 26,000 small businesses out, and that included a large number of hispanics, because 92% of the hispanics that have -- that are in business, are small business people.

HUNTER-GAULT: That's not going to -- excuse me, that's not going to hurt Republicans in the campaign, Mr. DeBaca?

Mr. DeBACA: Not in the least. As a matter of fact, there were 602,000 new businesses created, most of them small businesses, created during the last year in 1983. Many of those were hispanic businesses, hispanics now account for well over 250,000 businesses throughout the nation. Most of those businesses are providing jobs not only for hispanics but for other Americans as well.

HUNTER-GAULT: Excuse me, but aren't you facing an uphill battle, though, I mean, considering the fact that hispanics went for Democrats two to one in 1980?

Mr. DeBACA: We -- we consider the battle that's before us as a very formidable one, we're taking no one and nothing for granted. We're concentrating heavily in those states that I've mentioned earlier, those are strong electoral states. We need Texas, we need California, we need Arizona, we need all those states in which hispanics are -- constitute a substantial segment of the population, voting population. We feel that the President's policies in bringing this country back on its feet in promoting policies that are going to assist small businesses in assisting persons operating programs at the local level is going to win the hispanic vote for the President.

HUNTER-GAULT: How important is having a Catholic woman on the Democratic ticket, Ms. Baca?

Ms. BACA: I think it's important to have a woman and being Catholic of course relates very much to what the majority of -- the majority of hispanics' religion. And that is most of them are Catholic. But just the fact that Geraldine Ferraro opposed the Simpson-Mazzoli bill, and has supported hispanic issues throughout her career in Congress, I think, is important. So of course hispanics will relate to her as a friend and know that she will continue those kinds of policies as vice president.

HUNTER-GAULT: Well, that takes us right into our next segment. Jim?

LEHRER: It does indeed, because one of the toughest and touchiest specific issues among hispanics and those wanting their votes is the Simpson-Mazzoli immigration bill, and Vice President Bush had something to say about it last night, too.

Vice Pres. BUSH: I expect everybody would agree that a nation must control its own borders.I understand the worry that has come up about the possibility of discrimination that might result from the employer sanctions in one version or another of the Simpson-Mazzoli bill. But this president is not going to sign any legislation that will permit employers to discriminate against hispanics or anyone else. We are opposed to discrimination wherever it appears, in housing, in schools or in the workplace. And we have a special obligation on that, and I just wanted you to know that that's the case.

LEHRER: Mr. DeBaca, how do you interpret what the Reagan-Bush position is now on Simpson-Mazzoli?

Mr. DeBACA: I think the President is opposed to the House version of the bill; I think he has so much as said that over the last couple of days. I think however he finds the Senate bill still acceptable, and what remains to be seen is what the Congress will do with the bill in the next few days.

LEHRER: The Democrats, Ms. Baca just repeated it, the Democrats have come out strongly against Simpson-Mazzoli as the result of San Francisco. Is that smart politics among hispanic voters, in your opinion?

Mr. DeBACA: Well, I don't see that the Democrats coming against the -- together against the Simpson-Mazzoli bill, I see the hispanic Democrats, the hispanic caucus coming against it. They've been against it from the very beginning. I do think that a -- there still exists a strong amount of support among many conservative Democrats and certainly among many Republicans for the Simpson-Mazzoli bill.

LEHRER: That -- is that correct, Ms. Baca?

Ms. BACA: My understanding is that hispanics right now are talking to their congresspeople and urging them to defeat Simpson-Mazzoli. And I certainly hope that that will happen, if that it comes back to the House. And you've got to understand that one of the key issues in that bill right now that has totally frustrated hispanics and is so threatening to us is the guest worker program. When I was 17 years old, the first issue I was aware of as a young hispanic woman was the bracero program and how much it hurt our hispanics that were working in the fields in those days. And of course this is just a repeat of that legislation. That the bracero program was terminated in '65, and unfortunately is being proposed in the current Simpson-Mazzoli bill. We want the package of the Roybal bill. We want immigration reform, but we want immigration reform that is fair and does not discriminate. And we're hopeful that the Roybal bill will be the bill that will be considered.

LEHRER: Is -- when Ms. Baca says what she just said, and other members of the hispanic congressional caucus have said on this program, and have said regularly, have said it in San Francisco, that hispanics feel this way or that way about Simpson-Mazzoli, are they speaking for all the hispanics, you think?

Mr. DeBACA: I don't believe so, no, no. As a matter of fact, surveys done by the Spanish International Network in the last year, other surveys done by the American Federation for Immigration Reform, have indicated very strongly that a majority of hispanic are for immigration reform, they want to reform the outdated, antiquated policies of the U.S. government with regard to immigration, and I think there is strong support for many elements of the Simpson-Mazzoli bill.

LEHRER: What about the guest worker program?

Mr. DeBACA: I think there are -- there are serious problems with that, and I might add that the guest worker program was the -- was the work of Congressman Manetta -- I mean, Congressman Panetta, and he's the --

LEHRER: He's the Democrat from California.

Mr. DeBACA: He's the Democrat from California, that's correct. It was not a Republican idea, and I think the Democrats ought to take a good look at their own house.

LEHRER: Senator Baca?

Ms. BACA: I would just say that the Democrats right now that we're talking to, I think, will be helpful to us in defeating Simpson-Mazzoli. Now, I again want to repeat that I agree that hispanics have and have supported and do support immigration reform, that's of course what we all want, and that's why you have congresspeople like Ed Roybal and the other hispanic members of Congress doing their homework and proposing an alternative bill that is fair, equitable and just, and that's the Roybal bill. The problems in the Simpson-Mazzoli bill are so vast that I really honestly believe -- and I think this is true in those surveys that Fernando referred to, that were taken by the Spanish International Network -- that hispanics generally would -- would support the defeat off Simpson-Mazzoli. They are very frightened by that bill because of its potential discriminatory aspects with the employer sanctions and the I.C. card, and of course the guest worker program.

LEHRER: Frightened? Would you use that word?

Mr. DeBACA: I don't believe it. Ithink that's an over-reaction. I think that the leadership is frightened. I think he leadership of the -- many of the hispanic social program organizations that were born out of the '60s, the turmoil of the '60s, are disturbed. It's an issue around which they can -- they can rally, and this has given them an opportunity to come together and, unfortunately at election time I think the issue's been distorted substantially.

LEHRER: What are the politics of it? Are there votes there among the hispanics to be against Simpson-Mazzoli?

Mr. DeBACA: Not around that issue exclusively, I don't believe.I think that that is an issue, there's no question about it. It's an important issue, but it's not the most overriding issue for the hispanic community. Jobs, housing, so many other concerns that face hispanics, are more important.

LEHRER: What's your view of that, Ms. Baca?

Ms. BACA: The Simpson-Mazzoli relates to jobs, that's the problem, that with the passage of the Simpson-Mazzoli bull, you see the elimination of hispanic jobs as a result of the guest worker program. That will cause even more hispanics to be unemployed, and that hits at the core of the problem. You know the fact that unemployment has risen under the Reagan administration for hispanics.It still is not down to the 8.2% average in 1979, we are still running several percentage points over that in terms of unemployment for hispanics. And then when you have on top of that the cuts of this administration in our job training program, 60% proposed cut in employment and training programs, your 30-40 cut in bilingual education and your other education programs, the cuts in child care for single women who want to work but can't afford to if they don't have qualified and good child care. All of those things have hurt hispanics and they're a direct result of this administration which has been the most anti-hispanic administration in six decades.

LEHRER: Which you of course disagree very strongly.

Mr. DeBACA: I would disagree vehemently with the position Polly Baca has taken. I feel the President has helped hispanics as he's helped other Americans by revitalizing the economy and bringing us back on track.

LEHRER: Cousins DeBaca and Baca, thank you both very much. Robin?

MacNEIL: In overseas news today, further election returns in Israel narrowed the Labor Party lead over the ruling Likud bloc, increasing the chances that Prime Minister Yitzhak Shamir may form the next government. Unofficial results of the soldiers' votes, the last group to be counted, gave another seat to a right-wing splinter party, reducing Labor's lead over Likud to 44 to 41. Both Shamir and Labor leader Shimon Peres claim they can form a coalition government, but both were reported still short of the necessary 61 seats.

In Washington, President Reagan is reported ready to announce an easing of economic sanctions against Poland next week. Administration officials say the President will respond to the release of political prisoners by permitting Poland's national airline to resume flights to the U.S. and by authorizing new cultural exchange agreements. As of today the communist government says it has released more than 3,500 prisoners under an amnesty for 35,000 people, including some political prisoners. Jim?

LEHRER: Again, the major stories of the day.Continental Illinois Bank of Chicago, the nation's eighth largest, is being bailed out by the federal government under a $4.5-billion plan that will give 80% ownership of the bank to the government.

The Federal Communications Commission voted to eliminate rules on the number of radio or television stations any one person or company may own.

And lab tests showed drugs may have played a part in Monday's head-on collision between two passenger trains in New York City. One person died and 125 were injured in the crash. Robin?

MacNEIL: One of the largest lottery prizes in history was announced in New York today -- $20 million -- and the winner was a 63-year-old retired carpenter, Venero Pagano. The New York lottery prize had built up to the reward figure after three previous drawings produced no winner. Long lines formed before last night's drawing in New York, as bettors sought to buy last minute tickets. Pagano has been living on disability since he retired as a construction site carpenter, after breaking his back in 1977. He said he wants to fly to Australia to see his brother-in-law, otherwise his life in the Bronx wouldn't change very much.

VENERO PAGANO, lottery winner: I will continue to grow my tomatos in the yard. [laughter] The friends I got, they gonna stay.

REPORTER: Will the yard change, though? Will you buy a bigger house somewhere?

Mr. PAGANO: Oh, I got bigger tomato like this.

REPORTER: Will you buy another house somewhere or not?

Mr. PAGANO: I don't know yet.

REPORTER: Do you want to stay in the Bronx?

JOE PAGANO, winner's son: It was a real big shock last night, you know.

REPORTER: How did you hear about it?

JOE: I honestly didn't believe him at first, you know.He told me around 11:00 o'clock, and I thought he was kidding. He asked me to recommend a lawyer to him.

MacNEIL: Good night, Jim.

LEHRER: Good night, Robin. And we'll see you tomorrow night. I'm Jim Lehrer. Thank you and good night.