The NewsHour With Jim Lehrer : WETA : September 17, 2001 7:00pm-8:00pm EDT

Good evening, I'm Jim Lehrer. On the news hour tonight, day seven after maths, from the hijack airliner attacks in New York and Washington. We'll summarize the developments, explore today's stock market calamities, and other impacts on the U.S. economy, report on the restart of O'Hare Airport in Chicago, and look at Pakistan, a country caught in a deadly vice between friends. Major funding for the news hour with Jim Lehrer has been provided by. Imagine a world where we're not diminishing resources. We're growing with ethanol, a cleaner burning fuel made from corn, ADM, the nature of what's to come. And by the corporation for public broadcasting, this program was also made possible by contributions to your PBS station from viewers like you.

Thank you. The stock market reopened to a major fall today. The Dow Jones Industrial Average dropped a record 684 points to 89-20, a loss of more than 7%, NASDAQ fell 115 points to 1579 or just under 7%. Wall Street had been closed since last Tuesday's hijack airliner attacks. On the nearby World Trade Center and the Pentagon in Washington, there had been hopes that patriotism would prevent large selloffs of stock today, a decision by the Federal Reserve before the markets opened to cut a key interest rate couldn't prevent the selling either. Line stocks were especially hard hit, and late today, US Airways announced its cutting 11,000 jobs a quarter of its workforce. The Wall Street Performance prompted President Bush to reaffirm his great faith in the economy. The President also greeted workers at the Pentagon.

He had his strongest words yet for the prime suspect in the attacks that killed more than 5,000 people. He said the United States wants Osama bin Laden dead or alive, bin Laden is believed to be hiding in Afghanistan. Secretary of State Powell said today that country's ruling Taliban militia could find him if they wanted to. Pakistan today sent a senior delegation to the Taliban, urging that bin Laden be handed over. Afghan radio said a grand counsel of Islamic clerics would consider that tomorrow. Pakistan also effectively closed its border with Afghanistan, and said the Taliban had deployed up to 25,000 fighters and scut missiles along the frontier. Also today, President Bush met with Islamic leaders in Washington. He said those who commit hate crimes against Muslims should be ashamed. The FBI confirmed it was investigating 40 incidents in the United States, including two killings.

In the investigation of the hijackings, Attorney General Ashcroft said associates of the terrorists may still be in the United States. The FBI said it had detained 49 people for questioning. And this evening, Major League Baseball resumed playing for the first time since the attacks. Some of the details now beginning with Wall Street and the economy, Terrence Smith reports. Before the financial markets opened, the president arrived at the old executive office building at 8 a.m. to thank federal workers and to tell Wall Street and the nation that it was time for business to resume. I'm here to remind people that the best way to fight terrorism is to not let terrorism intimidate America. A lot of people who work in this building were deeply worried about their lives, last week. A lot of courageous people here and they're coming back to work and I'm going to thank them for that and remind them we've all got our job to do.

Half an hour later, the federal reserve did its part, cutting the federal funds rate, a key short-term interest rate, by half of a percentage point. It was the eighth rate cut so far this year. At 9.30 on Wall Street, traders delayed the start of their day to observe two minutes of silence to honor those lost, missing, or injured. It was followed by song. Then came the opening bell, run by firefighters and police officers, in honor of their 300-plus colleagues who were dead or missing. But when the market actually opened, the Dow fell more than 600 points, more than 6 percent

of its value within the first 45 minutes. The Nasdaq quickly lost 6 percent. As the day went on, the market tried to bounce back, but the Dow weighed down by sharply depressed airline stocks, remained deep in negative territory. In interviews throughout the day, Treasury Secretary Paul O'Neill remained optimistic about the overall market. He told CNN that he thought the country would not fall into a recession. I always remember when you're looking at markets for every seller, there's a buyer. For every buyer, there's a seller. My guess is, when we look a year down the road, the people who bought today are going to be the happy people, the people who sold will be sorry they did it. O'Neill's boss also pronounced himself optimistic, the president visited the Pentagon at midday. In terms of our economy, I've got great faith in the economy. I understand it's tough right now. Transportation, business is hurting.

Obviously, the market was correcting prior to this crisis, but the underpinnings for economic growth are there. Secondly, I'm confident we can work with Congress to come up with an economic stimulus package, if need be, that will send a clear signal to the risk takers and capital formators of our country that the government's going to act too. Today's drop was the largest ever in terms of Dow points, 684. But in percentage terms, the 7% decline was nowhere near, 22% drop in October, 1987. When Eiffel has more. We look at the markets and the broader economy, with David Jones, chief economist at Opry G. Lanston and the company, a securities firm in New York, Donald Maron, chairman of UBS America, a global financial services company. We hope to be joined shortly by Hugh Johnson, the chairman and president of First Albany Asset Management Corporation, where he also serves as chief economist, and we're joined

by Diane Swack, the chief economist at Bank One Corporation in Chicago. Donald Maron, we just heard the president say that the stock markets had already been correcting themselves prior to this. What was it that happened today? Well, I think the most important thing it had today was the market open. It worked. It took care of record volume and it did it all without interfering with the most important thing, which is the rest of your operations downtown. And the market worked the way it should. Airline stocks went down and defense stocks went up. So to have a market of over 4 billion shares in one day and to have this kind of result is something that most of us in the business would see as what would come out of this terrible calamity. And I think one other thing, which is there is a pent-up demand here, or supply, given the fact that the market was closed for four days. So you're saying we shouldn't be worried too much about what looked like a pretty big sell-off? Well, I think it's expected that you'll have a sell-off in here, but how people acted in this sell-off is the most important.

This is the first post 401k real big sell-off, which means that you now have a very high percentage of Americans whose future on a financial side is in their own hands. They have a 401k's and key hose and other programs that they're administrating. And those individuals acted very rationally. In fact, our early indications are is they were net buyers on balance of what's going on. So the market and the users of the market seem to be in conjunction. Foreign buyers, perhaps we're selling more than American buyers. And again, because it's a pent-up demand over four days, we'd have to look to subsequent days to learn a little bit more about people's longer-term intentions. Diane Swock, did it look the same way to you from Chicago? Well, I think that's a very good analysis. I would add to that that I walked out of those clouds and saw Wall Street leaving the World Trade Center on Tuesday. And I can't imagine, I got to come back to a nice clean office in Chicago. I can't imagine the emotional issues going back. I'd also add to that the foreign aspect is very important.

This is the first time up until a little before nine o'clock on September 11. The US was not only seen as an oasis of prosperity in a world of global turmoil, but also as an oasis of safety. And after that, that safety was questioned. So to some extent, this US seen as a safe haven for foreign investors had to be undermined, at least to some extent. I think the foreign selling was evidence of that. We saw it also in the euro markets today. But I don't think over the long haul, that's going to be where we go. In fact, I think what we're adjusting to right now is the near-term front-term losses that we all have to endure emotionally and physically. But there are, ironically, silver lining, there is a silver lining to that cloud I walked through. We now have a Federal Reserve that's stimulating even more than, really say thought, fiscal stimulus, it's a blank check in Washington right now, and the ripple effects for the economy for the tech sector, telecommunications, all the things that need to be fortified and rebuilt in this economy as a result of this incident are going to stimulate the economy in 2002.

I have to ask you. You say you walked through that cloud away from that part of town on Tuesday. This is not an illusion you were actually physically there when this happened. I was in the area out at the World Trade Center at the National Association for Business Economic Conference site that I chose actually in 1998 for our 2001 conference, so I felt very responsible for the people there. Hugh Johnson, how does this look to you what happened today on the markets? The first thing I don't think it's very surprising if you look back through financial market history, World War I, to Vietnam, if you look at various crises such as Cuban and missile, Iranian hostage or Persian Gulf, you ordinarily have this so-called flight to safety, which means investors sell their stocks and move into cash or gold or some perceived safe haven, and that's the first response you get from investors, so what we saw today was unexpected or in the magnitude but certainly was predictable in that we saw that flight to safety, so I'm not really surprised, nor am I alarmed by what I saw today.

The magnitude was a little bit much but generally speaking what happened was expected. David Jones, not all the action was not on Wall Street, in fact the action by the Fed today a week or so ago would have been a big story all by itself, what effect did that was that design to have? Well certainly the Federal Reserve, I think, had two purposes really in their half-point cut. I might add back to 3% where we were in the recession after the Gulf War in 1991, one was to give some measure of confidence to the markets while they fell a lot as we have just heard. I think it was an orderly process and so I certainly think that that was of some help, obviously there was going to be open and selling, given the fact that we have to adjust the market to the anticipated realities of perhaps at least a brief recession in coming months. The second thing is that the Fed was aiming at trying to help the economy later on, even before this terrible terrorist attack, the economy was shaky on the verge of recession

and I was expecting the Federal Reserve between policy meetings to cut rates so I think it was to build confidence and to build a base for future recovery, obviously not coming until next year. Was there anything in today's advance that surprised you in the way the consumers behaved in the way that the market behaved or the way that the Fed behaved? Actually I was not greatly surprised, I actually used the European stock markets as a very rough guy, there is really no precedent for this situation but European markets in the post terrorist attack period fell between 5 and 10% that is European stock markets and so that was a starting point for looking at today and of course we did fall within that range and I think it was inevitable that markets would look ahead. We were just on the brink of recession, I think now for perhaps a couple of quarters we'll see negative economic growth which of course by definition is a recession but the fact

that we fall more perhaps because of this crisis, consumers pull back, I think it could mean that we'll recover stronger perhaps in the second half of the next year given monetary stimulus and given the fact we will see a federal budget that moves to boost the economy as well. Donald Mayer and David Jones just alluded to what happened in foreign markets and that the recession that some people are anticipating in the United States would also happen in Europe will also happen in Japan, what is your take on that? Well I think it's perfectly clear that the economy of the United States is a dominant economy in the world and that other economies around the world are very much affected when ours is, so I think it's not practical to say that somehow we can be separate from Europe or Europe more importantly can be separate from us. I think what's happening here now in terms of the stock market is the stock market and the economy have separated themselves, at least in the short term. What you're seeing is the emotional content of capital flows in the United States and

in the rest of the world. What you'll see over the next couple of weeks and months is essentially a referendum on where people want to put their capital. This is a world which is a large amount of capital here, Europe, Asia and other places. And I think what we'll find is that United States notwithstanding this dashedly deed is the place that people feel the most comfortable with their capital, how they put their capital in this market whether it's in the bond market or the stock market will inevitably depend on their outlook for our economy and the companies that comprise it. But basically that's the issue going forward. Will America continue to be the recipient of these capital flows because it's 54% of the world's economy. I think the end is going to be a resounding yes. Diane Swank, when we think about the economy and the markets, we don't often think about emotions but it seems like emotions are playing a big role in what happens to the economy and the near and the long term. How do you interpret that? Well I think emotions are playing a very big role especially in the near term. There are sort of three ways I'm thinking about this current situation is the upfront losses

that are both emotional and real. They do have real consequences for the US economy. But then the medium term gains, the silver lining to the cloud that I walked through is that we are going to see more stimulus in this economy than had previously thought and there's going to be ripple effects through the economy in terms of how everybody thinks about security, their infrastructure systems could bring new life into a tech sector that had been left for dead and on that side of it I think we will be very, many people will be very surprised at the bounce back not only in the markets, a catch up rally, I'm very careful at using my words there, not a return to what we saw in the 1990s but a catch up rally in that and I do think we will see a return of foreign investors as well but we're going to have to go through this very rocky emotional period. Consumer confidence will no doubt drop or plummet dramatically. The way the surveys are designed, consumers are asked basically, is there better world today than it was yesterday and anyone answering yes would have to be wonderful, they're crazier not.

On the other side of it though, we've seen consumer actions speak louder than their words all year. Now we've had a definite interruption to economic activity even for consumers as people were glued to their TV sets, not moving, businesses were shut down and there's real repercussions of that that will fall into both the third and fourth quarters but I don't believe we're going to actually have the full blown recessions quite a severe as some do. I do think we are going to have a dampening effect, we will have a negative third quarter as a result of this, no question in my mind. But the bounce back, people may be very surprised going forward at the bounce back. This is one thing where war actually is a stimulus to the US economy, in 1990 it wasn't. 1990 was the only war we ever fought in this country that was not a stimulus to the US economy. We essentially just drained the inventory as all that we built in the 1980s but this is a real stimulus. I want to come back to that point about whether war is a stimulus but first I want to thank you Johnson to pick up another point you made about the ripple effect. What is the ripple effect of this kind of an event and which we saw today at the stock market for instance that airline stocks were very heavily affected?

Are there other industries which will be feeling the ripple effects of what happened not only last Tuesday but what's happening in the market now? There's a lot of companies that will be somewhat positively affected, some will be negatively affected, you mentioned the airlines industry, quite clearly negatively insurance companies obviously negatively affected on the positive side, lots of companies in the defense or the reconstruction process will be positively affected. I think overall let me just get back to one point that's been mentioned by a number of the panelists and that is that the markets tend to be somewhat emotional and just as we became very emotional and became sort of very high in price in 1999 and the year 2000 particularly in the technology sector. Now I think emotions have driven this market to levels that a lot of institutional investors say are really overstate the case that is the markets gotten somewhat undervalued and if we have some stimulus, further stimulus in the form of Federal Reserve interest rate cuts. Stimulus in the form of fiscal stimulus or more spending out of Washington.

If for some reason at some point here investors become even a touch more optimistic about what lies ahead for the economy in the second, third, and fourth quarters of next year, you'll see the stock market turn and surprise everybody even though economic conditions then might be difficult, you'll see the market going up during that period again signaling to us that there are better times ahead so these emotions might have driven this market to levels that are now starting to get undervalued, very interesting. Okay, David Jones, how about Diane Swank's point about the prospects of war being its own stimulus in addition to the other stimulus which they're talking about here in Washington for this economy? Well, I think economists have to disagree on some things so respectfully I will disagree. This incident, indeed, crusade or war could not have come at a worse time for the economy as a matter of fact consumer sentiment measured by the University of Michigan had begun to crumble just before this incident and certainly will be driven down more.

I think it's very unlikely consumers are going to go out and buy big ticket items in the face of this kind of political risk and uncertainty that we see. So I'm somewhat skeptical that this incident is going to help us. Now by the same token I will give some emphasis to the fact that Washington has finally come to its senses, they were practicing Herbert Hoover economics for a while in trying to preserve a huge surplus in the face of a major downturn in the economy. Those days are over, we will see a lot of spending, could see more tax cuts combining that with more fed rate cuts. I'm looking for the overnight federal funds rate to go down to say two and a half percent from the three percent level and that's way below the six and a half percent level. These last easing moves began at, so I am optimistic and I think this will come to bear on a better economy in the second half of the next year but I don't think we have, I

would hope that we don't have to rely on war to get those kinds of economic results. Donald Marin, I'll get back to you just a moment, I'm sorry, Donald Marin and what is, and what is your thought about this whole idea of the economics stimulus and capital gains tax cuts and other government led stimulus? Do you think that that's essential? Well I think first of all what's happened is the president's leadership here has been strong and direct, he's meeting with his economic advisors today. This having a common enemy will bring the congress and the president together very quickly on these issues so that the concerns that we may have had that the government would not act in a crisp and pointed way are probably not founded any longer. The surplus which is a fine thing to have and important has to be used at various times in the economy, this is the time to start spending it and to spend it quickly and correctly. So I think that part of the economy is going to work better, the government working with the highest priorities.

I think that's a very positive element in what's going on in this country at the moment. On a broader front what you have now is the economy probably focusing more and the individuals focusing more on how you build this country in a stronger way. One reason that this country and the stock market has not been doing as well in the last year or two is that it declined in the rate of gain and productivity. In part I think because the country's research base has been depleted. You'll see more investment in the basic areas of the economy that will allow it to continue to grow and it will all come together at a good time. We were moving into a quieter economy, consumer spending was going down, this is going to help. Also we're in a very different economy in other ways, inflation is very low. We have a surplus and while we have a higher rate of unemployment it is still relatively low compared to other periods where there were problems. Bringing everybody together at this point to focus on what most of us would think are logical actions may turn out to be a positive for the economy although at a huge price.

We're almost out of time but I do want to give Diane Swank a chance. I'm sorry, interrupted you a moment ago, you wanted to respond to something. I just want to make a couple more points, I didn't say that this recovery was contingent on war, I don't think it is, I think it's enhanced by the spending that's going to come out of Washington. We were already working through an inventory cycle in the lags that were implicit in monetary and fiscal policy. We're going to be hitting about 2002 anyways and this just exacerbates those stimulus to the US economy at a time when it was going to be about ready to come back anyways in my view. With that said, I think we also can't leave without thinking about not just the upfront losses, medium-term gains, but the long-term consequences. We all should be very aware although I think it's certainly justified, we're going to be seeing deficits much sooner than anybody thought if this economy does come back like I think it will in 2002, we'll see inflation sooner in the next three to five year horizon, much stronger than people think at this point in time and these are issues we're going to have to deal with later with deficits as well and I think that's a very

familiar environment, we've been in it before but it's not exactly a fun environment but we'll all be tracking it. Thank you all for joining us. Now and inside look at the day on Wall Street, our business correspondent Paul Somman of WGBH Boston reports. Amidst all the action in New York's militarized financial district this weekend was the pursuit of a key goal, reopening America's stock markets, silenced since Tuesday morning. The longest hiatus in market history was due in part to brokerage firms at Ground Zero. One capacitated and arguing that opening too soon would have put them and their clients at a woeful disadvantage. For member firms like Gruntland Company, which manages nearly $20 billion for some 150,000 clients, it was literally touch and go. If you see the building with the spire on the left edge that's covering it, it's the large black building where the smoke is coming from, that's one liberty plaza and that

was Gruntal's headquarters. In the former shadow of the World Trade Center, one liberty plaza itself is on shaky ground. All of Gruntal's 450 employees made it out alive. Pat Mellett's cousin, a Bronx fireman who rushed to the scene, did not. He died in the collapse of Wall Street. Who had been married six weeks ago. So, like any other family that has been a tragedy, you know, I'm sorry. Mellett has been a man distraught and a man obsessed with getting his employees, their computers, their phones, their data back online by Monday. Luck is the residual of planning on August 21st. We had a disaster recovery drill. The scenario, if you will, was that, okay, one liberty is out. It was either a fire, a bomb or a terrorist attack or something, literally, that's the way

the scenario was given to us and we had to move up here and recover and get to all of the systems. Yesterday, they were restoring data from backup tapes stored in a vault somewhere in New Jersey. This is all the data that's required to recover a firm like Gruntal when something like this happens. Mellett's main worry for today had been temporary confusion, but the greater fear of course was fear itself. Panic selling. Monday's jobs at Broker A. Barrenstein would be to stem a terrorist induced tide. Would these terrorists try to accomplish this break the back of the system? A cell order, in my perspective, and part of the message we're trying to get out to people, is a vote for the other guy. And so this morning, the stock market was braced for battle, both military and financial, as the worker of the world's economic epicenter united to get back to trading.

Up town, Gruntal was braced as well, as the first news came in around eight. The Fed had cut interest rates by a hefty half-point. Besides lowering rate marks, they're injecting liquidity by buying securities. CEO Robert Ritterized. I think stepping in now is a sign of how a dynamic the government intends to be to support the economy through this short phase, so I think it's a terrific step here this morning. But the main mood at Gruntal was defiance by go fighting back, maybe. Al Paladino's fight is personal. His son-in-law was a bond trader at the top of the towers. I want my pound of flesh in some fashion. I've lost someone very dear to me. It's your son-in-law. My son-in-law. And he's a good guy. So I'm here today because it's the only way I can really fight back. At 930, moments of silence at the stock exchange at Gruntal, right away, the market was down, and down, and down, and down, and then some more.

Some were buying. Gee, Cisco, Microsoft, GE, I mean, you know, pick them. Basically, you buy the whole freaking tank. But even here, some were selling. We sold a thousand Pfizer by late morning, some were simply stunned. I don't know. I don't want to make comments right now. I can get the wrong guy, I'm sorry. Sure. I'm trying to reach out. There's a lot of emotion right now. Thank you. Now we root out by contrast, so I hope, even with the Dow down more than 500 points. I'm actually surprised it's not down a lot more than it is right now, you know? But I think that, you know, you have to know that the market was going to be down sharply. What about all the talk this morning, patriotism? We shouldn't sell. We got to show them markets are going to go down. They're going to react to a situation that happens. And that is capitalism, and it's, and it's finest for. I mean, you react to the world around you. Meanwhile, after a few early glitches, the rental relocation was going remarkably well at sea. Small consolation, though, with the Dow down by 2 p.m.

650. 650. And what about the NASDAQ? Off 100 points. You know, whether or not people are feeding on it and making it go down more. We don't know. You have to add some patriotism and believing in your country. But the patriotic pitch wasn't protecting the market today, and by mid-afternoon, both casualties and survivors seemed clear. Who's up? Who's down? Why? Drug companies are up because, you know, you never have a diminished demand for drugs and pharmaceuticals, things like that. Defense contractors obviously were at war. Mortgage companies, Fannie Mae, Freddie Mac, interest rate sensitive, you know, securities. The insurers were taken on the chin as well. The airlines and the large, you know, financial brokerage firms, money center bags and, you know, things like that. Because, because they're, you know, this disaster hit right in the heart of everything. And, you know, with a lot of disaster claims, a lot of these guys are in the insurance business. Basically, you know, billions of shares did not change hands for almost a week.

So, you know, if you can't go to work, you've got nothing coming in for a week. It's going to affect you. Near day's end, Grundel's most visible figure, investment spokesman Joe Batapaglia, remained what he has been since the early 1980s. A professional optimist. This is within the terrible range of where the market would sell off to. And I'm encouraged by the fact that it's been very orderly, that it hasn't been more serious, and I think that we'll start to build a base at these levels. That's, I think, where we are right now. But by Sessions' end, the world's investors may have rendered a verdict of sorts. Terrorists notwithstanding, the U.S. economy was now some 5% less valuable than a week ago, given the average drop of all U.S. stocks today. A loss approaching $500 billion on the order of the crash of 1987. But if you're looking for hope, remember the rebound after that. Still to come on the news hour tonight, back in business at O'Hare,

and the deadly squeeze on Pakistan. The nation's airports are trying to get back to business, Elizabeth Brackett of WTTW Chicago, updates the situation there. Lions were long at United ticket counters at O'Hare Airport at 6.30 this morning. Passengers waiting were a mix of those who had planned to travel today, and others still trying to get home after last week shut down. What time to flight? No, it's okay. You should be okay. Surgeon Raymond Schmidt had been held up for three days in London. I'm a surgeon and have a full week schedule. I'm on call today, but obviously I'm not there to take call. Height and security measures were evident. Sniffer dogs now working 12-hour shifts at O'Hare. No curbside checking. Much to the dismay of the sky caps.

So what do you think about it? Not much. Frequent traveler Wayne Marshall had to stop at the ticket counter to pick up a boarding pass in place of his e-ticket. He used to be able to go right into like a member's club and check in and get on your plane right away. And now you've got to go through the desk and get your boarding pass before you can even get through security. Lee Mara Viglia had hoped to kiss her daughter goodbye at the gate, as she flew off to her first semester of college. But that was no longer allowed. Only ticketed passengers beyond security. I'm scared. I'm scared. I told her that she needs to call me as soon as she gets to her end destination. But Bob Waser says security is not as tight at O'Hare as it was getting out of Copenhagen yesterday. The unloaded all the baggage out onto the tarmac and we had to then clean our baggage and put it through the x-ray, standing there, and then our hand luggage, they checked everything in our hand luggage at the same time. All luggage in O'Hare, not just carry-ons, is now being put through x-ray machines.

Part of the new reality says airline expert Joe Sweeterman. You can tell the times have changed. Yes, passengers are much more patient. We're seeing hand searching of bags. We're seeing some bags run through several times. It's clearly a new environment for the traveler. The morning rush ended abruptly at 8 a.m. And terminals usually packed with Monday morning travelers began to look empty again. United American and Continental say they will cut their schedules by 20% in direct response to the terrorist attack. There are a few canceled flights on the flight information boards. The airline's new schedules simply don't include flights previously listed for today. O'Hare was operated about 60% of its normal capacity. 2700 flights with the previous daily average, but 1620 planes took off today. United had about half of its flights in the air. American about 65%.

Sweeterman says recovery from a complete shutdown takes time. Still a bit of a mess. There's probably going to be two or three weeks before the flight schedules and some of the aircraft maintenance cycles can be put back on some sense of normalty. Sweeterman says the airlines are now trying to strike the right balance between the need to get their planes back in the air and the reality of reduced consumer demand. Now we focus on Pakistan, the South Asian nation that has become a flashpoint in the war on terrorism first and background from Spencer Michaels. Under pressure from the United States, a delegation from Pakistan traveled to the southern Afghan city of Kandahar today. Their mission was to persuade Afghanistan's Taliban leaders to turn over Osama bin Laden. He is believed to be the mastermind behind the attacks from the U.S. And America has also demanded directly that Afghanistan hand over the suspected terrorist leader.

This Taliban-run radio chariot quoted officials who said the meeting with the Pakistanis was positive. The delegation then flew on to Kabul, the capital where they were expected to meet the Grand Council of Islamic clerics on Tuesday. The clerics could decide bin Laden's fate. At a news conference today, U.S. Secretary of State Colin Powell said all roads in the investigation lead to bin Laden, who he believes remains in Afghanistan. The Taliban, of course, is responding in the way that it always has that Osama bin Laden and his associates are guests in their country. Well, it's time for the guests to leave. No wait and see what they end up doing and what that court decides once it is convened in whatever fashion it convenes itself and what action it takes. I want to prejudge what we might do in response to what it might do. Meanwhile, a Pakistani military officer said today that Afghanistan had massed 20 to 25,000 fighters near the border of the two countries in the legendary Kyber Pass.

The army captain said the Afghans were armed with scud missiles capable of striking Islamabad the capital of Pakistan. He said his troops were on high alert. He said, not a declared war, but we have to wait for the escalation and what happens next. After last week's terrorist attacks, the U.S. presented Pakistan with a list of a dozen demands. The most prominent is that it must force the Taliban to turn over Osama bin Laden. Today, Pakistan closed its 1500-mile border with Afghanistan, blocking frightened Afghan refugees fleeing their country. Many expected a U.S. military assault. Pakistan has also confined a million Afghan refugees already in the country to camps in the north. That would keep Taliban sympathizers from mixing with Pakistan's Muslim population.

The president of Pakistan, General Pervez Musharov, continues to walk a tightrope. Yesterday, he explained to religious leaders his decision to assist the United States in an anti-terrorism campaign. If they are coming here, we will make this place the graveyard of American army. But at the street level, bearded Muslims in white robes, a sign of their devotion, demonstrated to show they are not with Musharov, in his sighting with the U.S. Today, Muslim leaders called for a strike on Friday to protest U.S. plans. Over the weekend, a Taliban representative in Pakistan warned of retaliation against all who in any way help in military action against Afghanistan. You do not expect Pakistan to take such action, such to allow, such unjustified action against the Islamic community of Afghanistan. Musharov came to power in a bloodless coup in 1999.

The army general declared himself president in June of this year after ruling the country for nearly two years. Pakistan, a poor nation of 140 million people with a per capita income of $500 a year, has been an American ally for decades. But Pakistan has been under American economic sanctions since it tested a nuclear weapon in 1998. And to Margaret Warner. For more on Pakistan's crucial role in the U.S.-led campaign against terrorism, we turn to Robert Oakley, Ambassador to Pakistan during the first Bush administration, and coordinator for counterterrorism during the Reagan administration. And Mansour Ijaz, an investment banker and frequent op-ed columnist for international publications. His parents emigrated to the United States in 1960 from Pakistan shortly before he was born. Welcome to you both, Mr. Ijaz, beginning with you. Give us your understanding, I know you've been talking to people in Pakistan, about what transpired at this meeting today. What did the Pakistanis tell the Taliban leaders and what was their response?

Well, I don't think I can tell you precisely what that was, but I will give you the general sense that I've gotten from people that are close to both sides, the Taliban, as well as the intelligence services in Pakistan. It is pretty clear that the intelligence chief of Pakistan told the Taliban leaders that this time, whatever has happened and whoever may be directly responsible, essentially you guys have now allowed this to go too far. And in a sense, you have gone so far that it now damages us as a country as well. That is something that the ISI chief would not have said even three months ago, given the circumstances that exist between Pakistan and Afghanistan in terms of their friendly relations, as we all know, Pakistan is one of three nations that recognize the Taliban's right to govern Afghanistan. The Taliban's response to that was that, well, the initial response was, well, we've told you before, and we're telling you again that Mr. bin Laden is our guest, and we have no intention of releasing him to the United States. But I think as it became clear later in the day, and it's important for everybody to understand that the intelligence chief of Pakistan is still in Kandahar.

I think as it got later in the day, maybe some better sense started to prevail, and that is when the idea of turning this decision over to the Ulimah, which is sort of the religious council of elders in Afghanistan, came up. Now, the question is, what are the conditions under which the Taliban would be willing to turn bin Laden over? And as I understand it, there are three primary conditions that they have said for it. The first is that the Ulimah, the religious elders would have to agree to this within Afghanistan. The second is, and this is a very important one, perhaps the most important one, that the organization of Islamic Conference, which is a collective body of many of the countries that we have banned, Sudan, Syria, Iraq, various religious groups, and so forth, they would have to also sign off on this. And there, our allies, Saudi Arabia, the United Arab Emirates, Pakistan itself, Indonesia, other countries like that that are Muslim countries, could play an extraordinarily valuable role for us in terms of getting them to sign off on this. And the third condition was that once bin Laden, if bin Laden were to be turned over and put on trial in a third country, that at least one of the jurists would be an Islamic Sharia expert or an Islamic judge.

So I think with these developments this evening, there is still a glimmer of hope that the Taliban may be prevailed upon to look at this in a more appropriate way. Ambassador Oakley, the Taliban has given at least part of this response before, as I understand it's saying, well, we're going to let these Islamic clerics decide it. Does it sound? Do you think there's a glimmer of hope that Pakistan actually might be successful in this mission that it went on today? The only way that you can have success is through the Pakistanis. And I have a great deal of confidence in General Musharraf and General Mahmoud, who was here for almost a week, and he can convey... He's the intelligence chief. He's the intelligence chief that Mansur was talking about. He was in this country at the time of the events. He spent a lot of time talking to senior U.S. officials.

And you mean he was here at the time of the bombings last week, yeah. And they trust him. He's been their chief supporter in the Locateur. And so if there's anybody who can bring home to them the magnitude of what's happened in the response, the very power of the response is General Mahmoud with the backing of General Musharraf. General Mahmoud give a sharp and General Mahmoud and the other members of the ruling hunter have decided to put their fate on the line, the fate of Pakistan on the line. They've seen the effects of the Taliban and bin Laden and other radical Islamic groups have been eating away at Pakistan like a cancer. Successive governments have put off dealing with this. Now, there's no choice. Therefore, Pakistan determined to go ahead. I have a great deal of confidence that they understand the Taliban. They understand the Afghans. Now, it may be that some of the Taliban, including Omar, will decide to stick with the Osama bin Laden. In which case, I suspect the Taliban will begin to splinter.

It's not that cohesive in organization. So I think that one way or another, we're going to get, if not our negotiated agreement, a sharp diminution, if not an end to the Taliban protection of bin Laden, at which point they'll have to find a way to get it. And how important, just to give us briefly a little history here, is the Pakistan intelligence connection with the Taliban, in terms of the Taliban survival or ability to rule there. Well, the Pakistani started off helping the Taliban thinking they would be a great service to the Pakistan in various ways. It turned out, I think, that the Pakistanis are riding it back of a tiger in the Taliban. Don't know quite how to get off, because the Taliban, by protecting people like bin Laden and by some of their other activities, they've encouraged a sharp, negative Islamic, fanatical reaction within Pakistan itself. And so this is what they're confronting. On the other hand, we, the United States, are urging Pakistan to get in there and fight by using its superior knowledge and relationships with them. But they've got one hand tied behind their back because of the economic and political sanctions and military sanctions,

which we've applied upon that country for 11 years now. Mr. Yijaz, do you agree that the Pakistan government has had a change of heart? Or I guess I should say a change of strategy in terms of how they feel about the Taliban? Well, clearly the magnitude of the event last week would, shall we, let's put it this way, if it was 2,000 degrees inside the World Trade Center when the jet went into it, you can be rest assured that there's 2,000 degrees worth of heat sitting under General Musharraf right now, about which way he's going to take Pakistan for the future. And the fact of the matter is that there is no other choice that he had as a man who was trained in the West, who understands what the paradigms of life are here and what it means to have a strong economy. This is in fact what he has been working so hard for for so long. But now, let me just interrupt you. It's true, is it not that Pakistan itself could be considered a country that harbors terrorists. Yes, that's true, and it's certainly a problem that they've got, but I think that we have to be very careful about defining what is meant by terrorists.

The terrorists that struck the World Trade Center last week are very different breed of people than what we claim our terrorists in Pakistan, who are by many there considered freedom fighters fighting the cause in Kashmir against India. That's a different ballgame, so I think we shouldn't confuse those two issues. But what Pakistan's decision really has to be is that they're in their rationale and I'd like to go back to what Bob said before. Their rationale all along has been with the ISI. It was that we cannot afford to wage two wars on two borders at the same time. That is Kashmir and India on one side and Afghanistan on the other. And because Pakistan was sanctioned militarily in 1990 because they've had economic sanctions applied to them periodically since then, their economy and their military structure has weakened so much that the real problem you face today in Pakistan. And that's the decision that Mersherev had to make.

Is would it be possible for his army to withstand civil riots on the streets if the United States goes in and uses his country as a base? And you have to remember that most of the people who are in the lower echelons of the army, the enlisted personnel that carry the guns and police the streets in Pakistan. These are people who went to the same madrasa schools, these radical religious schools, as the very people who are out there in the streets right now. So this is where you have the potential for civil strife and that is why the reaction that the United States has in this situation has to be very carefully crafted and very thoughtfully planned out. Now Ambassador Oakley talked to us about these troop movements. We've also seen, in other words, let's say this probably becomes an issue if the Taliban doesn't agree. That is, the Taliban has threatened, as we saw on the tape, that they would wage war on any country that assisted an attack. There have been troop movements with the Afghans putting troops on their border, the Pakistanis moving their troops away from the border with India, that's a little unclear where they've gone and mixed reports.

Do you think there's a chance of conflict or hostilities between these two countries? Not out and out, I think that what we have to fear is what Mersher has been talking about, that they can provoke violent uprisings within Pakistan, attempt to overthrow the Musharraf regime. That's why this has to be done in the name of Islam. That's why Secretary of State Powell has been working so hard to rally a solid Islamic core to this international coalition for the campaign to save civilization and to fight terrorists. And the Pakistanis have said they would welcome Islamic members of this coalition upon their territory. It can't be the United States in the lead, it has to be the Islamic countries in the lead to the United States providing the muscle and the support from behind. The Pakistanis have said they would work with the Security Council resolution, not the United States. We're not that popular in Pakistan, in part because for the last 11 years we put Pakistan and Purda. We've cut off their weapons, we've cut off the economic support including help for education, for girls, population planning.

We've cut off spare parts, we've cut off training of Pakistani officers, therefore they go to religious schools in Pakistan. They go to military schools in the United States, so there's a lot that needs to be done from our point of view to help shore up Musharraf in this struggle, which is going to take a long time. It's not going to be over in a little short period of time. Mr. Xi's a brief final comment from you in the risks department about if there were to be some kind of an uprising, if you did have this government destabilized and more radical elements took control of the Pakistani government. And here's a government with nuclear weapons. How big a risk do you think that is? Well, I mean, I think that's probably the worst nightmare that we all think about. It's very clear that Pakistan has an advanced nuclear capability. I think the responsible thing to say is that Pakistan still is enough of a state to understand its responsibility in safeguarding those nuclear weapons wherever they may be. But I'm talking about if it weren't this government.

I understand that. Let's assume that now you had bin Laden running Pakistan. Just let's take the worst case scenario. In that case, I think there would be no choice for us and the global community for that matter to take very drastic measures to root out whoever was running the place. It does not necessarily mean that we have to go in and destroy the nuclear facilities. I want to be very clear about that. But it certainly would mean that we would have to take very radical measures to ensure that the people that were running this thing were not allowed to stay in there for very long. And that is precisely why when we go into this engagement, we have to be very precise about who we're targeting and we have to have, we have to use the most advanced capabilities that the United States military has to be able to go in and ferret out these guys as President Bush said, smoke them out of their caves. Literally, smoke them out of their caves. We need that evidence that sitting in the caves to know precisely what this network is around the world and how to unravel it and stop it once and for all. All right, Mansui Jaz, Ambassador Oakley, thank you both very much. Finally tonight, President Bush met with American Muslim leaders today amid reports of violence and harassment against that community.

He urged Muslim Americans be treated with respect after last week's terrorist attacks. Here is some of what he had to say. These acts and violence against innocents violate the fundamental tenets of the Islamic faith. And it's important for my fellow Americans to understand that. The English translation is not as eloquent as the original Arabic, but let me quote from the Quran itself. In the long run, evil in the extreme will be the end of those who do evil for that they rejected the signs of Allah and held them up to ridicule. The face of terror is not the true faith of Islam.

That's not what Islam is all about. Islam is peace. These terrorists don't represent peace. They represent evil in war. When we think of Islam, we think of a faith that brings comfort to a billion people around the world. Millions of people find comfort and solace in peace. And that's made brothers and sisters out of every race, out of every race. America counts millions of Muslims amongst our citizens. And Muslims make an incredibly valuable contribution to our country. Muslims are doctors, lawyers, law professors, members of the military, entrepreneurs, shopkeepers, moms and dads. And they need to be treated with respect.

In our anger and emotion, our fellow Americans must treat each other with respect. Women who cover their heads in this country must feel comfortable going outside their homes. Moms who wear cover must not be intimidated in America. That's not the America I know. That's not the America I value. I've been told that some fear to leave, some don't want to go shopping for their families. Some don't want to go about the ordinary daily routines. Because by wearing cover they're afraid they'll be intimidated. That will not stand in America. Those who feel like they can intimidate our fellow citizens to take out their anger. They'll represent the best of America. They represent the worst of humankind. And they should be ashamed of that kind of behavior.

And this is a great country. It's a great country because we share the same values of respect and dignity and human worth. And it is my honor to be meeting with leaders who feel just the same way I do. They're outraged or sad. They love America just as much as I do. And I want to thank you all for giving me a chance to come by and make God bless us all. Thank you. We'll see you online and again here tomorrow evening with our continuing coverage of the September 11th tragedy. I'm Jim Lara. Thank you and goodnight. Major funding for the new's hour with Jim Lara has been provided by. Imagine a world where no child bakes for food, while some will look on that as a dream. Others will look long and hard and get to work. ADM, the nature of what's to come. And by the Corporation for Public Broadcasting, this program was also made possible by contributions to your PBS station from viewers like you.

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