It is probably inevitable that the word “Whitewater,” which refers to a picayune and almost comically unsuccessful Ozarks real-estate development that involved Bill and Hillary Clinton, is now being transformed into “Whitewatergate.” This is something to set the journalistic pack howling and, probably, generate gobs of legal fees. It is also a moment of gleeful opportunity for the Other Party, and some Republicans have actually started muttering about impeachment. What did he know and when did he know it–and what, by the way, about her? Specifically, did the president of the United States or his wife engage in any kind of criminal behavior? Did they profit by others’ losses, act improperly, abuse the public trust, cross some ethical line? Broadly (and resentfully) the Clintons say no, and the press and public cannot know otherwise now But the devil is always in the details, and Whitewatergate has lots of them–furry, complicated, nutball details that imply wrongdoing by somebody. And there’s tragedy–the unexplained suicide of White House Deputy Counsel Vincent Foster last July. If Foster, who among other duties had handled the Clintons’ file on Whitewater, killed himself because of some connection to the investigation. Whitewatergate must be serious indeed. But there is no evidence so far that Whitewater precipitated Foster’s suicide–and none whatever that the Clintons did anything seriously wrong.
YOU CAN’T UNDERSTAND WHITEWATER without understanding Little Rock in the roaring ’80s. These were good times in this clubby, tightly wired political town. The deregulation of the U.S. savings and loan industry, combined with a local boom in the bond-peddling business, kept the banks and lawyers jumping. Some people got very rich very quickly–and one of those who did, and did it with brio, was James McDougal, a smart, politically connected guy who had early on befriended William Jefferson Clinton and his lawyer wife, Hillary. McDougal had briefly served on Clinton’s staff when Bill was first elected governor of Arkansas, and then left state government to pursue a fortune in banking when Bill lost the election of 1980.
During Clinton’s first term as governor, McDougal acquired a small bank in northeastern Arkansas and in 1982 bought controlling interest in a mom-and-pop savings and loan called Madison Guaranty. Over the next three years, Madison Guaranty became the springboard to financial success for McDougal and his wife, Susan; in 1986, due to intensifying pressure from federal regulators, it also became his downfall. In 1989 Madison Guaranty did a $47 million belly-flop into the arms of the Resolution Trust Corp., the federal agency created to manage the S&L crisis, and McDougal was prosecuted in federal court for his part in the debacle. He was acquitted in 1990, but by then he and Susan had separated. He went back to southern Arkansas, and she moved on to the West Coast and a financial dispute with Zubin Mehta, the distinguished classical conductor. McDougal, who suffers from manic episodes, is in tough shape psychologically and nearly broke today. Susan McDougal is now being sued by Mehta and his wife for allegedly embezzling $188.000, a charge which she has denied.
BILL AND HILLARY BECAME EQUAL partners with James McDougal and his wife, Susan, in Whitewater Development Corp. in 1978–though the Clintons never invested as much as the McDougals did. Whitewater was an attempt to build down-market retirement and vacation homes on 230 acres of land along the White River in northern Arkansas. Shakily financed and indifferently managed, the venture never really clicked, and the Clintons say they lost $68,900 before they sold their stake back to McDougal (for a lousy $1,000) in 1992. But it was hard to tell where Whitewater ended and Madison Guaranty began, and investigators are still trying to determine whether the partnership played any significant role in the collapse of the S&L. The answer, on the basis of thousands of pages of regulatory records released by Arkansas officials last week, is no. Whitewater was never more than a small part of McDougal’s wobbly empire, and the bank regulators rarely if ever mentioned it in their reports on Madison Guaranty. By 1985, when the Whitewater venture had played out, McDougal apparently traded the remaining land for part-time use of a two-engine Piper Seminole. Like many of McDougal’s affairs, this deal was weirdly complicated–but he seems to have traded away the Clintons’ interest along with his own.
LET’S MOVE ON. ONE OF THE QUESTIONS that concerns investigators and editorial writers now is whether Clinton or his wife, during their years in the governor’s mansion, did anything to help their old friend McDougal keep Madison Guaranty afloat. After all, Bill as governor was in a perfect position to keep state regulators off McDougal’s back, and Hillary as a partner in the Rose Law Firm, that bastion of the Arkansas legal establishment, was in a great position to help. Although the Clintons again say no, the answers are less certain here. It is a fact that Hillary in 1985 represented Madison Guaranty in a successful attempt to persuade state officials to let the thrift raise cash by selling preferred stock. This was at a time when McDougal was trying to keep state and federal regulators at bay. It is also a fact that Madison Guaranty paid the Rose Law Firm a $2,000-a-month advance against services to be performed, and that McDougal has told reporters he hired the firm after Bill complained about the state of the Clintons’ finances. McDougal said last week he regarded the bank’s relationship with the Rose firm as “giving a friend’s wife some work.” Asked whether the arrangement might not have been inappropriate, he said, “I’m not teaching ethics this semester.”
Worse yet, Beverly Bassett, a protege of Bill’s who was then serving as the Arkansas commissioner of securities, approved the concept of the stock plan in a “Dear Hillary” letter that suggests cozy familiarity. Here is a state regulator–an appointee of the governor telling the governor’s wife that their friend McDougal could use a novel approach to raise cash for his troubled thrift. State records include a handwritten note to Bassett from a subordinate questioning whether Arkansas law allowed thrifts to sell preferred stock to the public. Bassett overrode the question, but in an interview with NEWSWEEK she said the staff finally concurred in her decision to permit the stock offering.
The stock sale never happened, and Bassett claimed she did not know at the time that the Clintons and the McDougals were partners in Whitewater. More broadly, says Bruce Lindsey, one of Clinton’s senior advisers, “there is no evidence that [Bassett] did anything that could be considered going easy on Madison.”
Did other regulators–state or federal–go easy on Madison Guaranty? The emerging record of state and federal regulators’ attempts to crack down on Madison Guaranty is replete with critical findings on insider loans and underestimated liabilities, and it will take months to sort out all the allegations. But since there were hundreds of troubled S&Ls all across the country at that time, and since it took three years for Madison Guaranty to fail, the questions about the regulators’ conduct at this point seem to involve issues of judgment, timing and tactics, rather than favoritism or impropriety. This is Lindsey’s argument. Bassett, he says, was seriously concerned about Madison Guaranty in 1986 and was working to arrange a takeover by FSLIC, the Federal Savings and Loan Insurance Corporation. That way, he says, customers could more quickly recoup their losses from federal deposit insurance than if the regulators simply waited for the bank to collapse. “She was just trying to protect depositors,” Lindsey said.
The stickier issue is whether Hillary, by agreeing to represent Madison Guaranty was implicitly trading on her relationship with Bill. How could Bassett not be influenced by the intervention of her boss’s wife? Lindsey says “Hillary’s involvement was not significant” and says he does not think “there was any conflict or anything improper” in her conduct. Besides, Lindsey says, nothing ever happened with the stock plan. The bottom line here, it would seem, is an issue of legal ethics rather than some violation of law–and Little Rock, with its tightly interconnected legal and political elites, looks at ethics somewhat differently from the way it’s taught in law school.
BUT THE INFERNAL DETAILS KEEP ON coming. One involves a 1985 political fund raiser at Madison Guaranty’s office in Little Rock. McDougal staged the party as a favor to Bill Clinton, who was trying to pay down debts from his 1984 gubernatorial campaign. It netted $30,000, including $12,000 in checks from Madison Guaranty. According to news accounts, investigators are still trying to determine whether any of that money came from an estimated $250,000 in business loans that regulators suspected were improperly diverted from the bank. McDougal has denied wrongdoing, and Lindsey said that Clinton could not know where the money came from.
Then there’s the case of David Hale, a former municipal judge in Little Rock who started an investment firm of his own. Hale’s company specialized in writing loans for the disadvantaged that were guaranteed by the Small Business Administration, and he was indicted by a federal grand jury in Little Rock last year for allegedly defrauding the SBA. In 1986 Hale’s company loaned $300,000 to a company called Master Marketing, whose president was Susan McDougal. Jim McDougal admits some of the money went to a land deal involving Whitewater, but the Clintons say they never knew about it. Hale, who is awaiting trial on the unrelated SBA case, has tried to negotiate a plea with federal prosecutors by offering testimony on McDougal’s financial machinations. He says he loaned the money to Susan McDougal after Bill Clinton personally asked him to help. Clinton denies this–and it is only fair to point out that Hale has an ax to grind.
MCDOUGAL WAS FORCED OUT OF MADison Guaranty in 1986, and RTC took over the bank three years later. The Feds had another failed thrift with a portfolio of overvalued assets and the taxpayers, as usual, were left holding the bag. Another strange wrinkle appeared during the mopping-up, and it involved two more FOBs–Vincent Foster and Webster Hubbell, both partners in the Rose Law Firm. This episode began when the Federal Deposit Insurance Corporation decided to sue an accounting firm, Frost & Co., which had audited Madison Guaranty. Foster wrote FDIC to solicit business, and Rose wound up representing FDIC in the suit against Frost & Co. Webb Hubbell, who migrated to Washington with his friend Bill and is now the number-three man at justice under Attorney General Janet Reno, handled the case for the FDIC–despite the fact that Hubbell’s father-in-law had been an executive with a Madison Guaranty subsidiary and had extensive dealings with the bank.
Hubbell says he informed FDIC of the potential conflict of interest. The suit was settled for $1 million, far less than the $60 million the FDIC hoped to collect from Frost. Hubbell has disqualified himself from the Justice Department’s ongoing investigation of the Madison Guaranty scandal. So has the U.S. attorney in Little Rock, Paula Casey, who is a former law-school student of Clinton’s.
Which brings us to the saddest and most mystifying element in the Whitewater imbroglio–Vince Foster’s suicide. Foster shot himself on July 20 in a deserted park across the Potomac River from Washington: no one really knows why. But he was the keeper of the Clintons’ Whitewater file, and he probably knew that the Madison Guaranty investigation was gathering momentum. In fact, RTC examiners were pushing the Justice Department to open a criminal investigation of the bank’s collapse, and the FBI obtained a warrant to search David Hale’s Little Rock office for evidence on the day Foster killed himself. There may be no connection: White House officials say that Foster didn’t know about the FBI’s planned raid.
White House Counsel Bernie Nussbaum found the Whitewater file in Foster’s office two days later and sent it to Williams and Connolly, the law firm that represents the Clinton family. On Christmas Eve the file was subpoenaed by a federal grand jury. Does it contain a smoking gun? Probably not. Lindsey and other White House aides maintain that Bill and Hillary never had much documentation for their disappointing joint venture with McDougal, and McDougal says the records of his dealings with the Clintons exist entirely in his head. Still, the wheels of justice have begun to turn and may lead to the appointment of a special prosecutor in the months to come. For better or worse, the Whitewater story is only beginning–and how it is handled could be just as dangerous to Clinton as the facts of the tangled case.
Deep Throat’s dictum was, “Follow the money.” But with Whitewater, it’s the documents:
1987: The McDougals say they sent all the Whitewater files to the Clintons, who don’t recall asking for or receiving them. A year later, Hillary asks for power of attorney to manage Whitewater.
Fall 1991: Betsey Wright stores many Clinton business papers in vault at campaign headquarters.
July 22, 1993: Two days after the suicide of Foster (above), Bernard Nussbaum ships Whitewater files from Foster’s office to Clinton lawyers.
December 1993: Clinton agrees to turn over Foster’s files “voluntarily,” even as a subpoena is being prepared.
Jan. 2-3, 1994: White House aides say they’ve turned over the files. The next day, they confess it will be a “couple of weeks.”
Jan. 5, 1994: The files, it is revealed, have been subpoenaed–and therefore are sealed.
