The NewsHour with Jim Lehrer

GWEN IFILL: Good evening. I`m Gwen Ifill.

On the NewsHour tonight: the news of this Tuesday; then, the Federal Reserve`s rate cut, we get two views on its impact; a look at security contractors in Iraq after one company was implicated in the fatal shootings of Iraqi civilians; the story of one man`s work helping homeless kids; and Jim talks to Alan Greenspan about the housing bubble, tax cuts, and his new book, "The Age of Turbulence."

(BREAK)

GWEN IFILL: The Federal Reserve cut a key interest rate today, hoping to head off a recession. The reduction in the federal funds rate was the first in four years. The Fed dropped it half a point to 4.75 percent. The cut will translate into lower costs on consumer loans. A Fed statement said it hoped to "forestall" greater damage from the housing slump and rising mortgage defaults.

On Wall Street today, stocks shot higher on the interest rate news. The Dow Jones Industrial Average gained nearly 336 points to close at 13,739. The Nasdaq rose 70 points to close above 2,651.

Oil prices also surged again, gaining nearly a dollar to close just over $81.50 a barrel. It was the fifth record close in as many days. We`ll have more on the interest rate announcement and the economic effects right after this news summary.

The House moved today to help homeowners facing foreclosure. It voted to let the Federal Housing Administration back refinancing for those whose low "teaser" rates have increased drastically. The Bush administration said the bill goes too far by raising the ceiling on FHA-backed loan amounts, but Democrat Barney Frank of Massachusetts said insuring the larger mortgages would generate increased revenue to aid lower-income borrowers.

REP. BARNEY FRANK (D), Massachusetts: Raising the upper limit, all it does is provide more funds which can be used, because the alternative -- and, again, this is in the Bush administration`s approach -- yes, will extend credit to people with weaker credit, but will charge those individuals more than somebody who`s richer, even if that individual is making the payments. I don`t think that`s appropriate for the federal government.

GWEN IFILL: Republicans endorsed the overall bill, but they objected to adding $300 million in grants for affordable housing. That money would come from FHA revenues. Congresswoman Judy Biggert of Illinois and other Republicans said that`s a mistake.

REP. JUDY BIGGERT (R), Illinois: We all want affordable housing in all forms, whether it`s Section 8, whether it`s public housing, whether it`s FHA modernization, but I think that taking the funds out of FHA and using them for a purpose unrelated to its core mission of the FHA would threaten the solvency of the FHA fund and its ability to pay out the insurance claims.

GWEN IFILL: The Senate is working on similar legislation; it already approved $200 million to underwrite financial counseling for homeowners.

Three more U.S. soldiers were killed in Iraq today north of Baghdad. The U.S. death toll for September now stands at 45. Since the war began, 3,787 Americans have died in Iraq.

Also today, the Iraqi government announced a review of all foreign security firms working in the country. The cabinet endorsed revoking the license of Blackwater USA. On Sunday, Blackwater guards allegedly shot and killed eight Iraqis they said were involved in an attack on a U.S. convoy. We`ll have more on this story later in the program.

The U.S. Senate opened a new debate today on Iraq war policy. Democrats promised to push several amendments to this year`s defense authorization bill. Senator Jim Webb of Virginia called for troops to spend as much time at home as they do in Iraq. That proposal failed earlier this year, and Republican John McCain, a presidential candidate, said it should fail again.

SEN. JOHN MCCAIN (R), Arizona: The constitution of the United States gives no authority to the Congress of the United States to set lengths of tour or lengths of duty in the military, and I hope we will steadfastly reject this kind of micromanagement, which would create chaos in the personnel system in the Armed Forces of the United States. That`s the view of Secretary Gates, as well as others.

GWEN IFILL: Senate Democratic Leader Harry Reid argued the Webb amendment is essential to restoring the military.

SEN. HARRY REID (D-NV), Senate Majority Leader: We have a responsibility, by virtue of the Constitution, to work with the military to set policy for the military. Anyone that suggests that the Webb amendment is unconstitutional either is not reading the law or no one has explained it to them very well.

GWEN IFILL: Reid also said he will push again to force an end to the U.S. combat role in Iraq by next summer. It was unclear if any of the amendments could garner enough Republican support to fend off a filibuster.

In Afghanistan today, Afghan officials said U.S. air strikes killed a top Taliban commander. They said he was linked to the kidnappings of 23 South Koreans in July. The air strikes hit a Taliban meeting in Ghazni province. At least 11 other suspected militants also died.

In another development, NATO reported a British soldier was killed in the south on Monday.

The director of national intelligence insisted today Americans` phones have not been tapped without a court order since at least February. Mike McConnell testified at a House hearing. He could not say how many Americans were overheard in taps on foreign phone lines. But the chairman of the Judiciary Committee, John Conyers, pressed that point.

REP. JOHN CONYERS (D), Michigan: Would it be asking too much for this committee, all cleared for top secret, to be given a briefing on it? We`ve got to know.

VICE ADM. MIKE MCCONNELL (Ret.), Director of National Intelligence: We`d be happy to do that. But, sir, I need to answer your question one more time. How many Americans have been -- phones have been tapped without a court order? And it`s none.

CONYERS: I trust you.

VICE ADM. MIKE MCCONNELL: The law requires us to get a court order.

CONYERS: I trust you, but I`ve got to find this out. I mean, throwing these kinds of answers back at me when this is a thing that`s on the minds of most Americans in this country is not adequate.

GWEN IFILL: McConnell urged the committee to approve more changes to the Foreign Intelligence Surveillance Act to help fight terror and other threats.

New research today showed a drug for osteoporosis can drastically cut the risk of hip fractures and even death. The New England Journal of Medicine reported the findings. The study was based at Duke University Medical Center.

It said elderly patients who received the drug Reclast once a year were 28 percent less likely to die after a hip fracture; they were 35 percent less likely to have another fracture. The study was funded by Novartis, which manufactures Reclast. More than 300,000 Americans are hospitalized every year with a hip fracture. Roughly one in five elderly victims die within a year.

That`s it for the news summary tonight. Now: the Federal Reserve cuts rates; Iraq bans Blackwater contractors; one man stands up for homeless kids; and Alan Greenspan talks turbulence.

(BREAK)

GWEN IFILL: Now, the Fed`s decision to cut interest rates and its potential impact. Ray Suarez has more on the story.

RAY SUAREZ: Today`s Fed move was surprisingly aggressive. In a unanimous vote, members of the Federal Open Market Committee made two interest rate cuts. They slashed the federal funds rate by a half-point, lowering the rate banks charge each other to borrow money, and the central bank also reduced the discount rate by a half-point, as well. That`s the amount the Fed charges for direct loans to banks.

In a statement the Federal Reserve said, "The tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally."

For some analysis of the Fed`s action, we turn to Bill Cheney, chief economist at John Hancock Financial Services; and Philip Jefferson, a former Fed economist, he`s now a professor of economics at Swarthmore College.

And, Professor, were you surprised by the size of the rate cut?

PHILIP JEFFERSON, Former Fed Economist: I was surprised by the size of the rate cut, because what the Fed was trying to do here, I think, is, on the one hand, support the economy and make sure that the troubles in the financial market do not spread to the broader economy.

But at the same time, they were in a position where I thought it would have been important to also signal to financial markets that, if you find yourself in a difficult position because of lenient banking and lending practices, the Fed was not necessarily going to come in and clean up the mess afterwards.

And the size of this particular cut leads me to believe that the concern about the economy, combined with the desire to improve the balance sheets of financial institutions, really argued towards reducing the interest rate by 0.5 percent. And they were able to do that, also, because of the news about inflation, in that the outlook for inflation certainly was not severe at all, and so maybe they felt as though they had more room than market participants originally thought.

RAY SUAREZ: Bill Cheney, as we look at the economy overall, what was the state of play that made an interest rate cut necessary in the first place?

BILL CHENEY, Chief Economist, John Hancock Financial Services: I think the way I look at this is that the Federal Reserve, a couple of months ago, was primarily concerned about inflation when they thought that the economy looked as if it was on a pretty robust growth path. Two or three months later, the picture looks really different.

The housing market is weaker than we thought it was. The labor market has cooled off a bit. And then we have this sort of seizure in financial markets, which while I agree with your other guest that the Fed doesn`t care about the well-being of gamblers on Wall Street, they do care about the way that this phenomenon seems to have sort of locked up the credit channels in some ways and made certain parts of the market for credit that impinge on real people, businesses and consumer borrowers.

So the Fed now really wanted quite seriously to take out some insurance against the possibility that all these sources of weakness would add up to a real problem and head us into a recession. I don`t think they expected a recession, even if they did nothing, but it`s an important kind of insurance. And they had plenty of room to do it. The federal funds rate was high enough that this action really is more like taking your foot off the brakes. It`s not really giving the economy a whole lot of gas.

RAY SUAREZ: Well, Bill Cheney, why don`t you stay with us, and continue that thought, and tell us what the approximate effect is right away? These are two different rates, the rates that the Fed charges to banks and banks charge each other. How do they percolate through the economy when they drop? How is the effect felt?

BILL CHENEY: Well, the effect is felt on a wide range of short-term interest rates. It`s felt even on the sort of troubled parts of the economy where people are reacting to adjustable rate mortgages. Those adjustable rates, in some cases, will move up a little bit less than they would have otherwise. If they adjusted already last year, maybe they`ll be adjusting down a little now because of this.

But those impacts directly on consumers and business borrowers are probably really quite small. I think the bigger impact is really on the balance sheets of financial institutions, who are now looking at a bigger spread between their short-term cost of funds and their return to borrowing, to lending longer term, and on the overall psychology of the financial markets.

They`ve pushed out more money into the economy; that`s what this amounts to. They`ve put more liquidity out there. And I think the financial markets are very much reassured that the Federal Reserve is on the job. You saw the result in the equity market today, took off like a shot. And I think the psychology in the short run is actually the bigger impact.

Longer term, yes, the channels of monetary policy work through making credit more available and a little cheaper across the board, but in the short run, it`s more a psychology.

RAY SUAREZ: Professor Jefferson, go ahead.

PHILIP JEFFERSON: Let me speak to that, because I think it`s important to note that, at the time of the Fed announcement, the market was riding higher a little bit today, but then it shot up at the time of the Federal Reserve announcement. Now, in that surge, the largest component of that surge came in the stocks of firms in the financial sector.

So it is interesting to note that that was the sector that responded most favorably. And I think it`s because investors realized that this, on impact, improved the financial outlook for those firms, by making some loans that were questionable now all of a sudden viable.

And why might that be the case? Well, the reason that would be the case is because the federal funds rate is closely related to the prime rate. And so now those variable rate mortgages that are key to the prime rate can be reduced. And it`s possible that, by reducing that prime rate, we now can have households whose mortgage payments on adjustable rate mortgages maybe $100 or less a month. And that certainly can make a big difference in not only improving the prospects for those households, but also in making loans that were heretofore or last night that were not performing all of a sudden much more viable and performing.

RAY SUAREZ: Bill Cheney, do you agree that this rate cut makes unviable loans more viable and perhaps shores up people who had been speculators? Some people have called this rate cut a bailout.

BILL CHENEY: I think it`s a stretch to call it a bailout, and I really believe that the Federal Reserve truly has no interest in bailing out investors who make risky bets. But I think the reality is that, in the course of taking measures which will, in fact, sort of loosen up the financial markets and give a little boost to the economy, there`s no way that they can help making life a little easier for the people who are real stretched on their investments, who had made bets that were a little bit too risky.

The people who really went out on a limb have already gone bust. And that`s what`s supposed to happen in financial markets. You make risky bets; sometimes you lose them. And the Fed isn`t there to take care of that problem, but there is this issue that, in the course of stabilizing the economy and financial markets, maybe they make life a little bit too easy for some people. And I think that`s the trade-off that they just have to make.

RAY SUAREZ: And very quickly, Bill Cheney, do you think more cuts are on the way?

BILL CHENEY: I would say not. I think the economy is likely to evolve just fine. And by October, the Fed will decide it doesn`t need to move again.

RAY SUAREZ: And, Professor Jefferson, same question to you. Do you think more cuts are on the way in three months` time?

PHILIP JEFFERSON: Well, I think now that they have gone a 0.5 percentage points that they will now step back and see how the economy plays out. And I think that they will hold it steady there.

RAY SUAREZ: Professor Jefferson, Bill Cheney, gentlemen, thank you, both.

PHILIP JEFFERSON: Thank you, Ray.

BILL CHENEY: Thank you.

GWEN IFILL: A reminder: Paul Solman is answering your questions on the Fed rate cut. To participate in our Insider Forum, go to the NewsHour Web site at PBS.org.

(BREAK)

GWEN IFILL: The private armies of Iraq. Judy Woodruff has that story.

JUDY WOODRUFF: For the past two days, public anger has been mounting in Iraq over the deaths on Sunday of at least nine Iraqis, allegedly killed by private security guards accompanying a State Department convoy in Baghdad. The guards were working for the American firm Blackwater USA.

IRAQI CIVILIAN (through translator): We see the security firms or the so-called American security firms doing whatever they want in the streets. They beat citizens and scorn them.

JUDY WOODRUFF: A dozen other Iraqis were wounded in the firefight in western Baghdad. Accounts differ on who fired first. This injured man said...

IRAQI CIVILIAN (through translator): They shot randomly.

JUDY WOODRUFF: The Iraqi government blamed the Blackwater personnel and ordered all the firm`s contractors to leave the country. It also ordered an investigation of all private contractors whom the government licenses.

The North Carolina-based Blackwater USA provides most of the security for the U.S. embassy personnel in Iraq, with nearly 1,000 contracted employees. It is one of the largest private security firms in Iraq.

Company officials insisted their employees acted lawfully and appropriately in response to a hostile attack: "These civilians reportedly fired upon by Blackwater professionals were, in fact, armed enemies and Blackwater personnel returned defensive fire."

Secretary of State Condoleezza Rice telephoned Prime Minister Nouri al-Maliki late yesterday to express regret, and State Department spokesman Sean McCormack said today an investigation is underway.

But at the same time, U.S. Ambassador Ryan Crocker and other State Department officials have insisted the Blackwater guards were essential to their security in Baghdad.

RYAN CROCKER, U.S. Ambassador to Iraq: There is no alternative except through contracts. And I would have to say that the capability and courage of the individuals who provide security under contract is worthy of respect of all Americans.

JUDY WOODRUFF: But the U.S. and Iraqi laws applying to private contracts are murky. There are more than 182,000 individual contractors of many nationalities working for the U.S. government in Iraq, doing an assortment of jobs, with an estimated 20,000 to 30,000 in security work. And while there have been several incidents with them being accused of shooting Iraqis, none has been prosecuted to date.

Security contractors are highly paid for high-risk work. One of the most horrific attacks of the war came in Fallujah in March of 2004, when four Blackwater employees were ambushed and killed. Chanting crowds hanged their charred bodies from a bridge.

This afternoon, Blackwater officials said they had yet to receive word from the Iraqi Ministry of Interior to stop work, and their contractors are still in the country.

For more on all of this, we get two views. Jeremy Scahill is author of "Blackwater: The Rise of the World`s Most Powerful Mercenary Army." He also reports for the Nation magazine and for the independent radio program, "Democracy Now." And Doug Brooks is founder and president of the International Peace Operations Association. It is a trade organization for military service companies.

Gentlemen, thank you both for being with us.

And, Doug Brooks, to you first. Blackwater is saying it has not been told to leave the country. The Iraqi government is saying, yes, that their license has been revoked. Whichever is happening at this moment, how important is Blackwater and these other security companies to the American war effort?

DOUG BROOKS, President, International Peace Operations Association: Well, I think all the contractors are pretty important. The security companies essentially relieve the military of doing a lot of sort of static security. We have a smaller military than we have had in the past, and it`s a very capable military, but there`s no reason you should have combat troops guarding gates and things like that. So you use a lot of contractors. And I think it`s important to remember, even with the security contractors, most of them are Iraqis. Now, Blackwater does a lot of high-end...

JUDY WOODRUFF: Most of them are Iraqis?

DOUG BROOKS: Most of them are Iraqis. And Blackwater does a lot of the high-end security, so it has to use Americans with clearances and so on. But for most contractors for convoys, for site protection and stuff, you`ll see mostly Iraqis doing the work.

JUDY WOODRUFF: Jeremy Scahill, how important are these private contractors, whether it`s Blackwater or the others to this overall effort?

JEREMY SCAHILL, The Nation Magazine: Well, Judy, the Bush administration failed to build the coalition of willing nations to occupy Iraq, and so instead it built a coalition of billing corporations. And as you said, there are now private contractors in Iraq than there are official U.S. soldiers. So, actually, the U.S. military is the junior partner now in this coalition that`s occupying Iraq.

These are extraordinary developments, but there`s nothing particularly new over what`s happened over the last 48 hours, because Blackwater itself has been engaged in numerous firefights with Iraqis over the years. In fact, for four years of occupation, we`ve seen numerous instances of U.S. mercenaries opening fire on Iraqis.

What`s different now is that the Iraqi government seems to be asserting itself and standing up, not just to any company in Iraq, but to what is the official mercenary company of the U.S. occupation. They guard Ambassador Ryan Crocker, Secretary of State Condoleezza Rice. I mean, telling Blackwater they have to leave the country is essentially saying, "We`re going to expel the bodyguards of the senior U.S. officials."

JUDY WOODRUFF: Doug Brooks, we hear him saying that there have been numerous firefights over the last four years. If that`s what`s happened, has any action been taken against these security firms, these other firms when that`s happened?

DOUG BROOKS: Well, essentially, they have rules that they operate under as a security company. Militaries have rules of engagement, ROEs, which are secret, which are aggressive, and allow them to use force and proactively to carry out their mission.

But security companies is a thick line, and security companies have rules for the use of force, RUF. And what it means is they`re allowed to defend themselves, they`re allowed to defend whatever they`ve been contracted to protect, whether it`s a convoy or a politician or an organization or whatever, and they are allowed to protect Iraqi civilians under imminent threat. And that`s it.

So it`s a very different sort of role. They`re lightly armed compared to the military, but they have a very specific, specialized role. And, yes, they do get -- they do end up protecting whatever they`re hired to protect quite often.

JUDY WOODRUFF: And what`s happened in the past when there have been complaints against them?

DOUG BROOKS: There is different ways of holding companies accountable. A company can be held accountable contractually through the U.S. government. It can be held accountable through those various rules, as far as the federal acquisition regulations and DFARS and so on. There`s different ways to hold companies accountable.

For individuals, this has been improving. And this is something that our association is working with Congress on. You can actually bring individuals back to the United States for trial, not local nationals, not Iraqis, but you can bring back people from other nationalities to the United States to try them for felonies.

JUDY WOODRUFF: And, Jeremy Scahill, how clear are the laws that govern these private contractors?

JEREMY SCAHILL: It`s interesting. You hear Doug say that they can be held accountable. The fact is that they have not been held accountable. Not in one single instance has a mercenary been charged with any crime against an Iraqi in four years of occupation, not under the Iraqi law, because the United States gutted the Iraqi legal system. At a time when it said it was handing over sovereignty, they were saying, "You can prosecute these contractors for crimes committed in your country."

They haven`t been held accountable under the court martial system, nor have they been held accountable under civilian law inside the United States. So either we have tens of thousands of Boy Scouts working in Iraq as mercenaries or something is fundamentally rotten with the system.

And I think that this is something that the industry likes to hide behind. They say, "Well, there are laws," and they look really good on paper. The fact is that the political will to prosecute these mercenaries has simply not been there.

JUDY WOODRUFF: And just to be clear, what are you saying they have done that they should be held accountable for?

JEREMY SCAHILL: Well, for instance, we had an incident that occurred last Christmas Eve, where an off-duty Blackwater contractor is alleged to have shot and killed a bodyguard for the Iraqi vice president. Blackwater responded to that by whisking that contractor out of Iraq and back to the United States. Now, Blackwater said it fired that individual and is cooperating with the Justice Department investigation, but so far nothing, to my knowledge, has happened to that individual.

There was a similar incident to the one that happened on Sunday involving Blackwater last may, this past May, where on back-to-back days Blackwater contractors engaged in firefights just outside of the Iraqi Ministry of the Interior. We had Blackwater contractors in Najaf shooting at Iraqis and saying it was like a turkey shoot.

So this is a big problem. It`s like a Wild West atmosphere in Iraq right now. And finally attention is being paid to it and the Iraqi government is asserting itself.

JUDY WOODRUFF: Doug Brooks, from your perspective, what has happened in these incidents? And why have they or have they not been held accountable?

DOUG BROOKS: There needs to be due process. And when there`s an incident that occurs that appears to be outside the rules of use of force, then there needs to be some sort of accountability. And this is something our industry supports.

You`re not going to get perfect accountability. You`re operating in what`s called a complex contingency operation. There`s no legal system. There`s very little in the way of governmental system. So you have to find a way that you can hold contractors accountable when there`s a problem.

And this is something we actually support from our side that good accountability is good for our industry. And we`ve been backing this. And, again, we`ve been working with Congress on this. We`ve been -- Congressman Price has been particularly good on this.

JUDY WOODRUFF: So are you agreeing that they have not always been held accountable?

DOUG BROOKS: I think it could be done better.

JUDY WOODRUFF: Well, let`s talk about the specific -- quickly, the specific incident on Sunday. You`ve got sources presumably inside Blackwater. Are they shedding any more light on what happened?

DOUG BROOKS: There seems to be a lot of different versions of the event. It seems, you know, as somebody once -- or someone I talked to today was saying that, you know, the Iraqi government responded within two hours to an incident, which is a record speed. So some question there may be some political aspect behind this.

The Ministry of Interior, of course, has a really interesting reputation in terms of working with militia groups and things like that. So there may be some other factors involved that we`re not quite clear on. I think there`s a couple of -- at least two investigations underway. We`re looking forward to seeing how those pan out, before I think we`d make any other...

JUDY WOODRUFF: Well, the State Department announced they`re doing a diplomatic investigation, as well as the Iraqi government investigation.

Jeremy Scahill, you`ve got sources inside Iraq. You`ve been talking to them. Are they shedding any more light on this?

JEREMY SCAHILL: Well, I think that the main concern right now -- Doug Brooks talks about how there needs to be due process. There has been a systematic failure to allow Iraqis due process when they`re the victims of crimes.

And the fact of the matter is that Blackwater says that it only engages in defensive operations. The fact is that you can`t get more offensive than occupying someone else`s country. And Blackwater has put its forces at the vanguard of that operation.

And Iraqi lives are put at a far lower value than the American lives that Blackwater is protecting, and this is just the most recent incident. And it`s tragic to see the Iraqi civilian with bullet wounds in that hospital room talking about being fired upon by these Blackwater operatives. I think that this system needs to be reined in and brought under control.

JUDY WOODRUFF: There are these -- go ahead.

DOUG BROOKS: I was just going to say, if I could take issue with that, many of our companies or most of our companies actually have a number of Iraqi employees. And one of the chief concerns of these companies is taking care of their employees.

There`s been numerous instances where employees` families have been threatened and so on, and the companies have stepped forward to make sure that they`re taken to safety. And one of the key issues that we`re looking at now is the whole asylum issue. I think this is -- we do take our Iraqi employees very seriously.

JUDY WOODRUFF: Meaning, if they`re accused of something and they`re found...

DOUG BROOKS: No, meaning that if they`re threatened by militias or whatever that the companies do take care of them.

JUDY WOODRUFF: All right.

There are -- back to you, Jeremy Scahill, quickly -- there are these two investigations underway. How much confidence do you have that eventually we`ll get to the bottom of this, we`ll know what happened on Sunday?

JEREMY SCAHILL: I think that we may see the beginning of some kind of prosecution. It`s going to be token, and it`s going to be symbolic. I think that this incident has brought it to the forefront, and I think that the Bush administration, especially if it wants to keep Blackwater in the country, is probably going to have to take some kind of a step against the company.

Doug Brooks talks about how these companies have concern for their Iraqi employees. What about concern for the Iraqi civilians who were killed over the course of these past four years by these unaccountable mercenaries in Iraq? That`s something these people never want to talk about.

DOUG BROOKS: I think you need to have the most professional people you can get in the field. And when the government actually contracts these companies, if you look in their contracts and stuff, they`re very careful about what sort of training these people have to have.

And I think you`ll see that, when you look at the statistics, the private security companies are involved in a proportionately smaller number of incidents than the military is. And the military, of course, is much better armed, and so there`s more problems with the civilian casualties in these events.

But in any case, there`s a lot of combat in urban areas. And when you`re attacked in an urban area, it is very dangerous. It`s a war zone. And these companies are operating in that war zone. And there`s always going to be problems. Now, the companies -- good companies will step forward and do the right thing, and that`s something we encourage, from an IPOA perspective.

JUDY WOODRUFF: Well, we are going to have to leave it there, gentlemen. Doug Brooks here in Washington, Jeremy Scahill joining us from New York. We appreciate it. Thank you both.

DOUG BROOKS: Thank you.

(BREAK)

GWEN IFILL: Now, another in our series of profiles of Purpose Prize nominees. The prize is awarded to people who began new social enterprises after retiring. Tonight, special correspondent Fred de Sam Lazaro reports on one man`s efforts to help homeless youth.

FRED DE SAM LAZARO, NewsHour Correspondent: In the shadow of San Diego`s gleaming downtown, behind the chain link and shrubs, are haunts only a few homeless people know.

RICK KOCA, StandUp for Kids: Hello. Anybody here?

FRED DE SAM LAZARO: And Rick Koca wants to keep it that way.

RICK KOCA: Got some nice candles. I see kids` clothes mostly. It`s a kid, at least a couple of kids. I don`t necessarily want to say where this place is. I don`t want people to come and hurt them or anything else when they`re sleeping.

FRED DE SAM LAZARO: Except to the adults who prey on them, Rick Koca says homeless kids are largely invisible in society, even though they number some 1.3 million.

RICK KOCA: If there`s one thing that I hear over and over and over, it`s, "Oh, my goodness I didn`t know there were homeless kids on the streets by themselves. I see the adults. I never see the kids." Well, we don`t see the kids -- first of all, we`re probably not looking. And then, I don`t know what we`re looking for. They don`t look any different than you or I.

FRED DE SAM LAZARO: One place you will find them is at the StandUp Center. It`s the centerpiece of an organization Rick Koca founded called StandUp For Kids. And, indeed, it`s hard to tell homeless kids from volunteers. This is a place to get a meal, toiletries, clean clothes, to check e-mail, play games, get a state I.D., or just get cleaned up.

RICK KOCA: And then the girls have their own shower and their own bathroom. Boys aren`t allowed to come down here and use this part.

FRED DE SAM LAZARO: And if only for a few hours, it`s a place to be safe.

RICK KOCA: So many couches here, because lots of kids like to come in, just sit down and go right to sleep. They know no one is going to hurt them, no one is going to touch them, or anything else. They don`t have to worry about anything.

FRED DE SAM LAZARO: Rick Koca says he`s always been involved with helping children. He grew up in a large family in Nebraska, was a scouting volunteer when his own kids were growing up, and also worked in a children`s home in Britain, where he was once posted during a 30-year naval career.

When he retired 18 years ago, he started StandUp For Kids to work with homeless children. Last year, StandUp served homeless youth some 58,000 times across the country. Koca discovered early that homelessness was a symptom of much deeper issues.

RICK KOCA: Their issue is, "I`m not homeless. I`m lifeless, and you can`t make this worse. You can`t shoot me. You can`t stab me. You can`t rape me and make this situation worse." And I think, as I began to walk the streets and saw that, that was horrible to me that kids didn`t care what you did to them. I mean, and lots of people did and do unbelievable things to children on the streets.

And that`s why it didn`t become about homelessness. It became about helping young people put their lives back together.

So you`ve been on the streets, on and off, for four years, is that what you said? Since you were 15, but you finished high school. You got a GED or what?

HOMELESS TEENAGER: Diploma.

RICK KOCA: Got a diploma. And how come you`re not in city college now, Alex?

FRED DE SAM LAZARO: Koca says most homeless kids are bright and resourceful, traits that allow them to survive on the street. We brought our cameras along as Koca visited what they called a squat, an abandoned, boarded-up hotel shared by Alex and two buddies, Jeff and Shadow.

HOMELESS TEENAGER: OK, don`t set the house on fire like you did on the other one.

HOMELESS TEENAGER: I didn`t set the house -- oh, yeah.

(LAUGHTER)

RICK KOCA: And how old are you?

HOMELESS TEENAGER: Eighteen.

RICK KOCA: How long have you been homeless?

HOMELESS TEENAGER: A year.

RICK KOCA: A year. What grade did you finish in school?

HOMELESS TEENAGER: Eighth.

RICK KOCA: Eighth grade. And do you see the point of getting a GED?

HOMELESS TEENAGER: Well, me and Jeff are going to go back to...

HOMELESS TEENAGER: Las Cruces.

HOMELESS TEENAGER: ... Las Cruces, and there we`re probably going to go to the college over there.

FRED DE SAM LAZARO: The only electricity here is in the smoke alarm batteries, so the group moved to the upper floors.

HOMELESS TEENAGER: It might be a little bit dirty, but it gives us a roof to sleep over during the nighttime. And then when it rains, it beats sleeping under a bridge in the rain.

I`m like a packrat. I come through here, and I`m like another man`s treasure is another man`s trash and blah, blah, blah. You know how the saying goes.

FRED DE SAM LAZARO: On this day, Shadow`s haul was a concert ticket he got from panhandling.

RICK KOCA: Where`s the concert?

HOMELESS TEENAGER: It was the House of Blues.

RICK KOCA: Oh, the House of Blues. And then you went like that?

HOMELESS TEENAGER: I always do.

RICK KOCA: Just curious.

FRED DE SAM LAZARO: They have survival skills, Koca says, but not social skills. Many homeless youth are fleeing abuse at home, he says, only to find new forms of it on the street.

RICK KOCA: We know that, in the U.S., a child runs away every minute. Within 48 hours, 50 percent of them return home. Our concern is about the other 50 percent who, according to statistics, 42 percent of them become involved in prostitution just to survive. And it`s an equal number among males and females. Therefore, there`s four things that you can do. You can prostitute yourself, sell drugs, beg for money all day, or steal.

FRED DE SAM LAZARO: Alex and Jeff admitted they`ve done all four, including what they call survival sex.

HOMELESS TEENAGER: And me and him -- I`m going to tell them anyways. We were -- and this guy named Uncle Don...

HOMELESS TEENAGER: And Georgio.

HOMELESS TEENAGER: ... and Georgio, basically they`re porno producers. Basically what they do is $250 a film.

HOMELESS TEENAGER: Basically, Georgio finds you. You have sex with Georgio, and then he hooks you up with Uncle Don, who`s the producer, and who gets you into the porno.

RICK KOCA: So would you consider that the worst thing that you had to do to survive on the streets?

HOMELESS TEENAGER: Yes.

HOMELESS TEENAGER: The worst thing, because I`m not -- that`s not my lifestyle. I don`t like doing that stuff.

FRED DE SAM LAZARO: Restoring stability to young lives like these is complicated by everything from legal problems to mental illness to family disputes. But beneath the rough exterior, Koca says, is often a strong desire to get out of their predicament.

HOMELESS TEENAGER: Right now, I`m just looking for a job.

RICK KOCA: But you`re going to Las Cruces? When you come back and you`re ready to look for a job, I`ll give you a cell phone and I`ll pay for it. If you want to go to school and you need a cell phone, I`ll pay for it. And I`ll say that to all three of you. We`ve already given three kids cell phones.

HOMELESS TEENAGER: That can`t be a bad deal...

HOMELESS TEENAGER: That can`t be beat.

HOMELESS TEENAGER: No, dude, I`m staying here. Forget that. I need a cell phone so I can get in contact with people and I can get in contact with my mom and my job.

RICK KOCA: We`re going to get you -- get your GED, back into college, right at city college. Same thing with you. I`ll hook you up with some nice clothes. I`ll hook you up with a cell phone and hook you up with a lawyer you need and you already know.

(CROSSTALK)

RICK KOCA: After you get back into school, I`ll buy your books if I have to buy your books. And as long as you keep going, then I`ll keep going.

(CROSSTALK)

HOMELESS TEENAGER: I have issues that...

RICK KOCA: And that`s fine. That`s fine.

FRED DE SAM LAZARO: StandUp for Kids now has programs in 37 U.S. cities. Its annual budget is still under a million dollars, thanks to some 5,000 volunteers.

RICK KOCA: So you can see how many we have in Baltimore, 531; Boston, 790.

FRED DE SAM LAZARO: Large companies that target the youth market have donated the cell phones and clothes, even grants for legal aid. They`re small things that kids could expect from a family in normal circumstances. Koca is clear that StandUp cannot do big things, like law enforcement, mental health care, or social work.

RICK KOCA: It isn`t about case management. You know, that is a very necessary part, but that`s not something we do. You know, it`s like we`re not the pastor, either, you know? We`re not the eye doctor. And we do the family piece.

He says, "Hey, Dad, I got your e-mail, and I`m happy to hear from you."

FRED DE SAM LAZARO: Rick is a father figure to dozens of young people, some who`ve moved onto stable lives, others, like this one, in prison.

RICK KOCA: And we`re not working. We`re just volunteers who help homeless and street kids. And we just kind of...

FRED DE SAM LAZARO: At 64, Koca plans to cut back on his hectic schedule. He traveled 197 days last year. But even in this second retirement, he plans to speak out on behalf of the generation of his grandkids. He says 13 homeless young Americans die every day from disease, abuse or suicide.

(BREAK)

GWEN IFILL: Now, the first of a two-part conversation with former Federal Reserve Chairman Alan Greenspan. During his 18-plus years at the Fed, Greenspan worked with four presidents, faced financial crises in America and abroad, and made some controversial decisions about economic policy. His new book is "The Age of Turbulence." Jim Lehrer spoke with him late last week.

JIM LEHRER: Mr. Chairman, welcome.

ALAN GREENSPAN, Former Federal Reserve Chairman: Thank you.

JIM LEHRER: "The Age of Turbulence," what does that mean?

ALAN GREENSPAN: It`s a title that I came upon only late in the book after I had gone through a fairly considerable amount of history of my tenure and various different activities. And then, as I began to discuss what has been going on in the 21st century, with the extraordinary changes in globalization, international economics, and, very importantly, the end of the Cold War, and what this type of environment is, is a turbulent financial environment, which ironically is probably, as a consequence of the turbulence, creating a more productive, stable, economic and employment situation.

JIM LEHRER: Well, speaking of turbulence, of course, we`ve got this thing going on, the subprime mortgage turbulence or crisis, whatever you want to call it. Looking back, do you think there is something that could have been done on your watch as chairman of the Fed that could have prevented this from happening?

ALAN GREENSPAN: I don`t think so. First of all, the problem that we`re dealing with now is an aspect of the -- it`s one of the -- it`s a result of human nature, basically the innate characteristics of human nature, in the sense that people, after a period of exuberance...

JIM LEHRER: There`s a magic word for you, exuberance.

ALAN GREENSPAN: I like that word. I think I`ll use it.

JIM LEHRER: OK.

ALAN GREENSPAN: But the problem is that we`ve had a bubble in housing, and the bubble in housing essentially has roots, as I point out in the book, to the end of the cold war, leaving aside all the economics that are involved.

But the consequence, with respect to the end of the Cold War, was a huge change in the geopolitical structure of the world, where a billion people who have been well-educated, extremely low paid, but behind the Iron Curtain or in centrally planned, quasi-centrally planned societies, started as a consequence of the result of the decline of the -- the takedown of the Berlin Wall, which showed an extraordinary amount of economic rune behind the Iron Curtain. And very quietly, with no fanfare, vast amounts of people abandoned central planning.

And for example, in China, there was a huge move of people from the provinces down into the special enterprise zones in the Pearl River Delta, which created a huge economic boom, which we`re all aware of, and those economics essentially, as I describe in some detail in this book, created a very major decline in long-term interest rates around the world. In every major country, housing prices went up very sharply.

JIM LEHRER: Because interest rates were down, it was easier to buy a house?

ALAN GREENSPAN: Absolutely.

JIM LEHRER: And the market boomed.

ALAN GREENSPAN: And the market boomed.

JIM LEHRER: It boomed too much?

ALAN GREENSPAN: Well, yes, I think it did boom too much.

JIM LEHRER: But you don`t feel any responsibility for keeping interest rates low?

ALAN GREENSPAN: Well, let me tell you. We had no choice. I mean, we`re the vaunted Federal Reserve, but this global force was suppressing us. We actually tried in 2004 to get mortgage interest rates up and to put some sort of clamp on the extent of the housing boom, and we failed, because usually when we move short-term interest rates up, which is what the Federal Reserve does, long-term rates go with it. It didn`t this time. We tried the same thing in 2005...

JIM LEHRER: Didn`t happen?

ALAN GREENSPAN: Didn`t happen. Had we done it back in 2002, there`s no doubt in my mind nothing would have happened. And as a consequence, we and, in fact, every other central bank could not confront this issue.

And what I`m increasingly beginning to conclude is, when you get bubbles like this, there is no way of diffusing them until the speculative fever breaks on its own. We tried numbers of things, and other people tried numbers of things.

But what is different about the United States is, when our bubble burst, housing prices started down. Our actual rise in prices is probably a little below average around the world. But we, as a consequence of having a major thrust in trying to increase homeownership in this country, developed properly, in my view, subprime mortgages so a lot of people who would not otherwise be able to own a home were able to own a home.

JIM LEHRER: But then their interest rates went up over a period of time. That`s when they got hurt, right?

ALAN GREENSPAN: Well, the real problem began because a very significant proportion of those loans were on terms which shouldn`t have been made. In many cases, I think it was fraud and that, I say in the book, as you know, the only area where I think more regulation is required in this country is addressing fraud, because fraud is destructive of markets, but more importantly it`s destructive of families.

JIM LEHRER: A little bit more about your job as chairman of the Fed, which you`ve written about extensively in the book. You say very clearly and way out front that you are a Republican. You`ve been a Republican since -- well, for how long? I mean, almost since you started knowing about politics, you`ve been a Republican.

ALAN GREENSPAN: Since I thought about politics...

JIM LEHRER: Thought about politics.

ALAN GREENSPAN: ... I`ve been a combination of libertarian-Republican all along.

JIM LEHRER: While you were chairman of the board, was there anything that you, looking back on it now, that you feel you did because you`re a Republican?

ALAN GREENSPAN: Well, I have the underlying political philosophy because I believe that markets work and that markets contribute a great deal to civilization. So it`s not as though I have an ideology and then I apply it. I have the ideology because I believe that it is the best way of coming at the world and what type of policy.

JIM LEHRER: What is the proper relationship, what should be the proper relationship between a chairman of the Fed and a president of the United States?

ALAN GREENSPAN: Well, first of all, the Federal Reserve is an independent agency, and that means, basically, that there is no other agency of government which can overrule actions that we take. So long as that is in place and there is no evidence that the administration or the Congress or anybody else is requesting that we do things other than what we think is the appropriate thing, then what the relationships are don`t, frankly, matter. And I`ve had very good relationships with presidents.

JIM LEHRER: Well, I know that you mention in the book -- and everybody knew about it at the time -- that President George H.W. Bush blamed you, partly at least, for his re-election loss.

ALAN GREENSPAN: I think he said -- I think he said "fully."

JIM LEHRER: I think fully. You`re right. I`m just trying to help you out there a little bit. What is it you did that upset him so?

ALAN GREENSPAN: We started to ease interest rates after the credit crunch in the late-`80s, and he felt that we were not lowering them sufficiently rapidly to re-galvanize the economy. The Federal Reserve essentially, in a unanimous voice, disagreed with him.

JIM LEHRER: Were you aware of the fact that this could hurt George H.W. Bush`s re-election? Was that a factor at all?

ALAN GREENSPAN: Well, not really, for a different reason, because the economy was picking up and, indeed, there are, as you`re probably aware -- I`m sure, when elections come around, there are a bunch of models which endeavor to try to figure out what the vote should be, given how the economy is doing and the like. And they`ve been very successful.

The models suggested that George H.W. Bush would be re-elected, given the nature of what the economic system was doing at that time, so I didn`t think that, so far as economics was concerned, he had anything really seriously to worry about.

JIM LEHRER: The other allegation that was made by some on the other side was that you did a favor to his son, President George W. Bush, by semi-endorsing his tax cuts. What`s the story there?

ALAN GREENSPAN: Well, I tried to explain it in some detail.

JIM LEHRER: I know.

ALAN GREENSPAN: I had always been very much against federal budget deficits as a corrosive force in finance, and I never really confronted the issue of, what would happen if we ran out of debt, meaning if we had a long period of federal surpluses?

And, indeed, starting in 2000-2001, all of the experts, including those at the Federal Reserve said, because of a structural change in productivity, we were now confronted with a rapid and continuing rise in a surplus which would, by 2006, virtually effectively eliminate outstanding debt.

JIM LEHRER: The deficit.

ALAN GREENSPAN: The problem would be is that, if that occurred in 2006, the surplus would have to be employed to purchase private assets. And having observed the way Richard Nixon and Lyndon Johnson behaved, the thought of having the government in control of vast claims on the private sector, including equities, I thought was a very dangerous possibility.

And so I thought the only sensible thing to do at that point is to try to bring the surplus down to zero, at the point when debt disappeared, so we would not be required to build up any assets. And that could have been accomplished with what George W. Bush`s tax plan essentially was suggesting, but also what the Democratic leadership`s tax plan could be.

And I essentially said in the book, which is true, that I would have given the same testimony if Gore were elected president as I did at that particular point. And there was a great deal of concern that I had opened up Pandora`s Box or something like that, which I thought was a little cynical, because I was granted all this huge power, and I said, "Now, wait a second. Nobody listens to me on the budget deficit, or on PAYGO, or other technical issues which constrain the budget. All of a sudden, I become all-powerful."

But most importantly, nobody read my testimony in full, because of I`d had all sorts of caveats about if the tax cut -- if the deficit -- I`m sorry, if the surplus didn`t continue, there would be a trigger it to change the law. So I thought that was a rather...

JIM LEHRER: Not guilty, in other words. Not guilty plea, sir?

ALAN GREENSPAN: I`m not guilty.

GWEN IFILL: Tomorrow night, in part two of Jim`s conversation, Alan Greenspan shares his views on Presidents Nixon and Clinton, and explains why he didn`t become, of all things, a jazz musician.

(BREAK)

GWEN IFILL: Again, the major developments of the day.

The Federal Reserve cut a key interest rate by half-a-point, hoping to head off a recession. Stocks shot higher on the interest rate news. The Dow Jones Industrial Average gained nearly 336 points.

And three more U.S. soldiers were killed in Iraq, as the U.S. Senate opened a new debate on war policy.

We`ll see you online and again here tomorrow evening. I`m Gwen Ifill. Thank you, and good night.