Fabiani’s view was that, the Clintons’ protestations to the contrary, it was a reasonable issue to explore in a presidential campaign: “[The] governor of a state who had regulatory authority over a savings and loan was in business with the owner of the savings and loan…. And the owner of the savings and loan was probably carrying more than his share of the costs of the business, the piece of land owned jointly with the Clintons.”
It was also obvious, almost from the beginning, that Hillary, as a lawyer representing the looted savings and loan while her husband was governor, had engaged in the kind of conflict of interest that she should have steered clear of, even though that kind of incestuous relationship was common practice in Little Rock and, increasingly in the 1980s and 1990s, Washington. But in retrospect, it’s shocking how much was made out of that mistake. Their joint partnership with the savings and loan owner and his wife in a piece of land never worth its purchase price grew into a federal case that was not resolved until after the Clinton presidency had ended and the office of the special prosecutor had been forced to acknowledge—after six years of investigation, $52 million, and the Senate trial of a president—that there had been no violation of law by either Hillary or Bill surrounding the land transaction (or in the Travel Office affair for that matter). The allegation that stuck was that Bill Clinton lied about sex.
As Hillary angrily predicted to her husband when he acceded to demands from the press, important Democratic leaders and Republican opponents, that a special Whitewater prosecutor be appointed, the investigation triggered by Whitewater consumed their lives and the Clinton presidency, perhaps even more than she could have imagined.
It is obvious that the Clintons, especially Hillary, had sought to obscure some of the facts, withhold information, and keep investigators away from other matters, many of them sexual, some financial, and all of which seemed hardly criminal. Far more than the numbing details of tax deductions and interest payments on a piece of land in the small town of Flippin, these other matters—including Hillary and Bill’s remarkable clumsiness in playing fast and loose with the facts—would provide grist for their enemies and fuel for the press.
New ground was being broken: the actions of a sitting president—actually his wife’s, more than his—while governor overshadowed his actions as president (at least until the investigation led to the discovery of the Lewinsky relationship). Had Lyndon Johnson, or either of the George Bushes for that matter, been similarly investigated in office about their pre-presidential past, it is interesting to contemplate what the results, and precedent, would have been.
Six years after the initial mention of Whitewater in Gerth’s Times report, when the president was impeached there was not one word in the charges about Whitewater.
THE GREATEST POWER of the presidency, and the essential tool put to use by modern American presidents, was the ability to set the national agenda, to maintain it, and to adapt it to changing circumstances.
The joint Clinton presidency lost the ability to set the national agenda perhaps as no other modern presidency had, even Nixon’s. Whenever Clinton was able to regain control of the agenda, he was almost always successful: the economic plan, NAFTA, welfare reform, and a series of orders and actions toward the end of his administration that made higher education available to almost any American who sought it. His craft and skill and perseverance in winning the major achievements of his presidency were extraordinary.
But from its very outset, and certainly after Vince Foster’s death, until Clinton’s acquittal in the Senate trial, the terms of national debate were more often set by the press, the Clintons’ enemies, the Republican opposition, and the special prosecutor than by the president. The best efforts of the Clintons, their top aides, and an army of lawyers were spent in response to endless investigations and the maintenance of secrets: secrets that, at any moment, could have made matters even worse, if revealed. The Clinton presidency was sapped of its almost limitless potential, including ironically its aim of ending partisanship. The Clintons had to fight for the levers of power constantly.
In displaying her least-appealing traits—the demand for absolute loyalty, the first-strike mentality, the truth-trimming—Hillary was in fact doing what she had always done, clearing a way for her husband to do what he did best: to think and act in terms of policy and implementation of their goals and ideas arrived at over a lifetime. Her method brought both success and failure. It also brought more pain. And then it brought a circuitous restoration of dignity and stature.
All of this was again on the table, in Hillary’s view, because of the press. For the first time since Vince Foster’s death, Whitewater had reappeared in the news in a major way on October 31 in the form of a story by Washington Post reporter Susan Schmidt. The front-page story said that Resolution Trust Corporation, a Treasury Department agency created to liquidate the assets of failed savings and loans, had asked federal prosecutors to look into whether funds from Madison Guaranty—the S&L mismanaged by Jim McDougal—had been illegally used to finance political campaigns in Arkansas in the 1980s, including one of Governor Clinton’s. The referral included specific questions about whether checks written on Madison accounts wound up in Clinton’s reelection campaign fund and whether such money was paid either from overdrawn accounts or from loans made ostensibly for other purposes and directed to the governor’s campaign.
The Clintons’ Whitewater land deal and their relationship with Jim and Susan McDougal were nothing new. But the referral for criminal investigation was more than sufficient to resurrect—rather sensationally, of course, now that the Clintons were in the White House—questions about the business dealings and associations in their Arkansas past. Adding to the journalistic combustion, just days after the Post story ran, David Hale, a former judge in Arkansas who was trying to broker a better deal with federal prosecutors regarding his own fraud indictment, complained to newspaper reporters that the Justice Department wasn’t taking serious note of his allegations that then Governor Clinton had pressured him to lend $300,000 to a phony marketing firm owned by Susan McDougal. Hale claimed he was told by Jim McDougal that the money would “help conceal earlier favors for the governor,” but investigators found no evidence to corroborate the assertion.
Schmidt’s initial story (as opposed to some of her later ones, based uncritically on leaks from the office of Independent Counsel Ken Starr) was real news. Both Hillary and Bill had been listed in the RTC referral as witnesses. Meanwhile, Bernard Nussbaum began making phone calls to monitor whatever investigations were underway in the Treasury Department and in the criminal division of the Justice Department.
Bill and Hillary had no choice but to hire an outside attorney. After interviewing three other candidates, Nussbaum and his deputy, William Kennedy, recommended David Kendall, of Williams & Connolly, the same firm as Bob Barnett, the Clintons’ lawyer on other personal business affairs. Hillary, who took more care in weighing the matter, and Bill felt comfortable with Kendall’s selection. The arrangement would make for smooth communication and counsel across the board.
Years later, Hillary remarked that when she read Schmidt’s story on Halloween, she realized that what happened in Arkansas would continue to haunt their lives, but nothing would come of the ghostly allegations, she predicted.
“From [the Clintons’] point of view, they’re convinced they did nothing wrong,” Harold Ickes said not long after Whitewater and its ramifications had become the staple of presidential news. “This was a twenty-year-old land deal in Arkansas that had nothing to do with current events. And they were just absolutely taken aback…. I think mystified is the best word, initially mystified by the focus that was [being] given to Whitewater, commodities trading, to the conspiratorial theories that were being cooked up about Vince’s death. They came here to do good. They thought they were on the right track. And they were just completely befuddled and mystified by the energy and the focus that was put on what they considered raggedy-ass and trivial issues, e
specially in contrast to some of what some other presidents had reportedly done. So, that in turn gave way to a real bitterness toward the press. They were already very unhappy with the press when they came here, and this just solidified it.”
Yet as a lawyer, Hillary must have recognized at least the appearance of her own conflict of interest, no matter how benignly she viewed her motivations. In 1985, after the Federal Home Loan Bank Board had released a report about bad loans and other practices that had led to Madison’s insolvency, the Rose Law Firm was hired by McDougal to represent the S&L in presenting its recapitalization plan to the Arkansas Securities Department. That same year, McDougal held a fund-raiser to help Governor Clinton pay off his campaign debt from the previous year. And as part of the Rose firm’s representation, Hillary wrote a letter to Beverly Bassett Schaffer, who recently had been appointed state securities commissioner by Bill, seeking permission for Madison to try two new approaches to raise funds and stay in business. Schaffer, the sister of Woody Bassett, the Clintons’ former law student and aide to Bill in all his Arkansas campaigns, obliged the request, but the money was never raised, and by 1986 federal regulators insisted McDougal be removed and the government took over the S&L. *15
According to Betsey Wright, the Clintons had a soft spot for Jim McDougal. “He was this pathetic, [psychologically] sick person who they had loved and didn’t want to disavow and somehow or other were trying to keep him from surprising them with stuff like not paying the taxes. †16 I mean, he was a problem always. Always. And they felt a certain sense of responsibility to take care of him.”
Bill Clinton met McDougal in 1968 when McDougal was working for Senator J. William Fulbright, and Bill interned in Fulbright’s office. The two became friends. When, in 1978, Jim suggested that Bill and Hillary join them in an investment deal, they jumped at the chance. The two couples created Whitewater Development Corporation when Bill was governor in 1979, and then borrowed $200,000 to invest in 230 acres of land along the White River. The idea was to subdivide the property and sell it to older couples who were retiring in northwest Arkansas. Clinton had invested a few thousand dollars on another McDougal deal and had made a profit, so the Clintons thought, Why not?, according to their later explanations.
“He was working for Fulbright, and he bought some hill of land for a hundred dollars an acre or some ridiculous price and cut it up into smaller tracts and sold it and made money,” Jim Blair said of McDougal. “And he thought he had discovered the Holy Grail, and so he did this three or four times…. Really all he was looking for was a finance vehicle, and he got to thinking he was a developer. Well, he was never a developer. Anyhow, he had made a few of these and I think in some casual conversation with the Clintons one time when he was making money he said, Why don’t you do this and we’ll make all this money? And they agreed to this Whitewater deal…. He just never, ever separated in his mind his investments and his partners’. It was all his. It was all his idea. He moved money around anytime he wanted. He wrote checks. He did all kinds of crap. They had no idea. At the end of the day, if you take the literal deal that they were full partners and then full shareholders once they incorporated, did he steal from them? Yes. Did he embezzle from them? Yes.”
Though McDougal talked up the idea that the investment would earn a nice nest egg for the Clintons’ retirement, interest rates in the late 1970s skyrocketed, and retirees became less interested in buying homes, so they all lost money on the venture.
Wright and other Clinton friends insisted that Whitewater was a bad real estate deal that the Clintons were constantly trying to get out of. “And at one time they thought they were out of it. It came up every year with me in filing the disclosure forms, getting them prepared for filing. And I just very well remember the year I had to go back and amend it because they thought they were out of it, and then found out that they weren’t,” said Wright.
Though hurt and angry at her treatment by the Clintons after they left Arkansas, Wright steadfastly defended their motivations and actions in the Whitewater deal. Hillary and Bill were thirty and thirty-two years old, respectively, when they made their investment. “It was a mess from the beginning. This was a case of trying to be landowners by typical do-gooders who didn’t know anything about setting up a business. And they thought Jim [McDougal] did. That’s why it was a mess. They didn’t worry about it…. It’s a big step when you buy your first investment…. They were idealistic kids when they did this.”
By the time a special prosecutor had been appointed to investigate their investment, they were a long way from being idealistic kids.
AFTER SCHMIDT’S Halloween story ran in the Washington Post, she and the paper’s editors began an insistent effort to get the White House to provide them with the underlying documents—especially tax returns—mentioned in the Resolution Trust Corporation’s criminal referral, and which the Clintons insisted would exonerate them.
Later, it became almost a parlor game in Washington to speculate on what would have happened had the Clintons agreed to give the material to the Post and make public their tax returns and the related documents. After all, went one line of reasoning, Bill and Hillary’s decision to refuse release of the materials—against the urging of some of their senior political advisers—and insist on their privacy led indirectly but almost inevitably to the appointment of a special prosecutor, which in turn led to Ken Starr’s obdurate investigation, which in turn brought the Paula Jones civil case into Starr’s line of questioning, which in turn led to Monica Lewinsky, and eventually the impeachment. And it appeared to be true that, in the tax returns, there was no evidence that the Clintons had done anything illegal, only the extremely embarrassing revelation that Hillary had made a $100,000 killing on cattle futures, which led to her subsequent feeble attempts to explain her supposed expertise on the subject.
But with the White House creating an indelible impression that it was trying to stonewall, suspicion grew. The media seized on it and powerful and ordinary citizens alike who were predisposed to dislike the Clintons smelled blood. Less than two weeks after Schmidt’s story, on November 11, Andrea Mitchell reported on NBC Nightly News that there was a “connection” between Vince Foster’s death and the Clintons’ involvement in Whitewater. “Before his death in July, former White House lawyer Vince Foster also got involved, helping the Clintons sell their share of the land company,” she said on the air. “He also discovered a tax mess; the partnership had not filed federal or state returns for three years. Now questions are being raised about a possible link between the growing Arkansas investigations and Foster’s death.”
The White House could no longer effectively manage the story (if it ever could), or control the damage. “Whitewater became the catch-all term for any allegation of unseemliness or impropriety against anyone anywhere near the Clintons or the White House—and it stuck,” George Stephanopoulos recalled. Meanwhile, the Clinton legislative agenda, including health care, was stalled and the president’s popularity was plummeting, he noted.
In November and December, the Washington Post sought to obtain the Whitewater documents through an unusual set of negotiations. “The Post was convinced we were hiding something sinister,” Stephanopoulos said. “Executive Editor Leonard Downie made a series of extraordinary personal requests for the documents,” and White House correspondent Ann Devroy “warned me that the paper would go on the warpath unless we answered their questions and released the documents.” The requests set in motion a series of meetings to debate the issue within the Clinton administration. Hillary set the tone for the White House’s response. She was joined by Nussbaum, Lindsey, and a cadre of lawyers who were implacably opposed to providing the records—especially the tax returns—to the Post or releasing them elsewhere publicly. Stephanopoulos, Gergen, McLarty, and Nussbaum’s deputy Joel Klein, on the other hand, argued that the facts would come out eventually so the administration might as well turn over the records and get it over with. “I don’t want them poring over
our personal lives,” Hillary told Nussbaum. He needed no convincing. “You’re entitled to your privacy,” he told her. “If you turn them over…[e]very document will be a news story. It will go on and on.” Gergen had been hired specifically to deal with just this kind of problem with the press. The Post had submitted a list of questions in the first week of December about Whitewater. Gergen told Bruce Lindsey, “We can’t just sit here and stiff them. You’re just inviting a tough response. My strong recommendation is to see what they want and then see what should be in the public domain and release it.” Lindsey and Gergen sought the advice of Betsey Wright. She, too, was opposed to cooperating with the Post. “They have managed to twist every piece of information out of context…. I wouldn’t give them anything.”
By December 10, Hillary said, she and Bill were especially angry that Gergen had gone to the Post newsroom to meet with the paper’s editors, and had seemed almost to promise that the newspaper would get the documents; the Clintons had not authorized him to hold out such a promise. The next day Gergen and Stephanopoulos made a final plea to the president after his radio address. Clinton sat between the two men drinking a cup of coffee. He listened intently. “I don’t have a big problem with giving them what we have,” he told them. “But Hillary…” She was not about to consent to reporters sifting through the documentary remnants of their past, looking at records of their investments, their tax returns, her legal work at the Rose Law Firm.
“Saying her name flipped a switch in his head,” Stephanopoulos said. “Suddenly his eyes lit up, and two years’ worth of venom spewed from his mouth.” Stephanopoulos could usually tell when the president was making Hillary’s argument: “even if he was yelling, his voice had a flat quality, as if he were a high school debater speeding through a series of memorized facts.” Now Bill began a tirade about the press. “No, you’re wrong. The questions won’t stop. At the Sperling Breakfast I answered more questions about my private life than any candidate ever and what did that get me? They’ll always want more. No president has ever been treated like I’ve been treated.”
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