Lance served as highway commissioner for only three years and resigned at Carter’s request to run as the governor’s successor to block Lester Maddox from returning to the statehouse. In the 1974 elections Maddox was defeated by George Busbee, a moderate, but in the long run the biggest loser was Lance, who borrowed several million dollars for his failed gubernatorial campaign. He never should have been named to a position requiring Senate confirmation. Instead of running the Office of Management and Budget (OMB), he should have been installed in a West Wing office near the president. There, without the rigors of disclosure and Senate confirmation, he could have provided broad-spectrum political and policy advice that would have been a godsend to the detail-oriented and essentially apolitical president.
Still, Lance’s appointment was by no means an irrational choice. He shared the president’s fiscal conservatism, and Jimmy wanted Bert as his watchdog over spending. All cabinet departments submit their annual spending estimates to OMB for review and incorporation into the presidential budget. The White House staff often suggests compromises, but the ultimate decision is the president’s. Bert himself rarely made the detailed OMB presentations, and, as my deputy, David Rubenstein, wryly noted, there were times when Bert sat next to the president on the side of the large oak table opposite his own OMB team and disagreed with them.6 In our administration, as in all others, competing factions quickly developed, with the conservative side represented by Bert and Treasury Secretary Michael Blumenthal, and sometimes joined by Charles Schultze, chairman of the Council of Economic Advisers. Vice President Walter Mondale and I balanced the president’s conservatism with what we thought was sufficient spending on programs to satisfy the more liberal Democratic members of Congress and key Democratic interest groups. So, after the formal budget appeals process was over, Mondale and I would meet with Carter in his private study to gain his approval to spend a a few billion dollars on programs to help low-income Americans, while staying within Carter’s tight budget constraints.
The president also had ambitious plans to reorganize the federal government, and wanted Bert to repeat what he had accomplished with state government in Georgia. OMB, the largest organization within the Executive Office of the President, is separated from the White House by a narrow alley and housed in a magnificent nineteenth-century building pillared like a wedding cake, which was designed to hold the Departments of State, Navy, and War—the last two predecessors to the Pentagon, a sign of the vast growth of the federal government. As OMB director, Lance was ideally placed to persuade Congress to give him the authority to oversee Carter’s reform of the federal government. They formed a task force headed by Harrison Welford, a talented former aide to Ralph Nader, and many major reforms are still in effect. Most notably, the reorganization of a number of disparate agencies into the Federal Emergency Management Agency (FEMA), which to this day provides a centralized response to natural disasters.
THE PAST COMES DUE
This was the running start by the Carter administration to fulfill the president’s pledge to restore trust in the government. But because of Bert’s banking background, it soon stumbled, and not for lack of warnings. A rushed and inadequate vetting process failed to allow Carter and his inexperienced staff—themselves close to Bert—to appreciate the problems posed by sweetheart banking practices that violated standard banking custom. Bert’s bank had financed an expansion of the Carter peanut warehouse in 1975 with a loan of $4.7 million, but that was repaid, unlike many more dubious loans. In the early months of the presidency neither appreciated how much appearances matter at the highest level of politics, where they now dwelled, particularly in the harsh lights of post-Watergate press coverage.
During their initial discussion in Plains, Bert very generally mentioned issues that had to be resolved about the funding of his abortive gubernatorial campaign, but they did not seem insurmountable. A Calhoun businessman who had been active in Carter’s presidential campaign called to warn against Bert’s move to Washington and urge that he remain in Georgia and “take care of his finances; he really is exposed.” This warning reached John Moore, a prominent Atlanta lawyer appointed to the transition team to examine the financial background of all nominees for high office and specifically to look for conflicts of interest.7 But none of the president’s young aides, whose principal national experience had been in the bubble of the campaign, could conceive that such a hugely successful banker was in serious financial trouble, perhaps even broke.
Moore took his position seriously, consulting with people who had done the same work for the Kennedy administration and staff members of the Senate committees that would confirm the Carter nominees. He realized that he had to make allowances for the way Bert ran the Calhoun Bank, doing favors like most country bankers because he was friends with most of the people who ran the town, although bending regulations like that would not have passed muster in Atlanta, let alone New York. He reported that Lance always demanded adequate collateral, and the bank never lost money on its loans. His problem was one of a potential conflict of interest: Lance held $5 million worth of stock in Atlanta’s National Bank of Georgia, of which he was also the president, and about $2.5 million in other stock. Moore felt it would be improper for the head of OMB to hold stock in any bank, and especially such a large concentration of stock in one. That led to a fateful decision that Carter himself made: Lance had to unload the stock of the big Atlanta bank within twelve months. That immediately depressed its value, which was also the collateral for personal loans that helped Bert maintain his grand lifestyle.
That was only the tip of the iceberg. Lance’s family bank in Calhoun was under a year-old federal order by the comptroller of the currency to stop granting him large overdrafts. The propriety of those loans, made through his own bank, was to haunt him when he joined the administration. He had used the money to finance his abortive campaign for governor and repaid hundreds of thousands with interest, but the order had nevertheless been referred to the Justice Department for investigation by the U.S. attorney in Atlanta, John Stokes, a Republican appointed by Richard Nixon. Lance quickly went to the comptroller’s Atlanta representative and persuaded him to rescind the order against his Calhoun bank. But the comptroller’s Washington headquarters did not take formal note that the order had been lifted, and an FBI investigation loomed on possible bank fraud.
Stokes wanted the probe to go ahead so he could remain in office for several months in order to collect $100,000 in retirement benefits.8 To make matters worse, the formal letter from the comptroller’s Washington office to Senator Abraham Ribicoff, chairman of the Government Affairs Committee that would vote to confirm Lance, never mentioned the campaign overdrafts and declared him “well qualified.” Lance was quickly confirmed by the full Senate so he could start work on the budget almost as soon as Carter was inaugurated in January 1977. As the details of a sloppy clearance process by both the Carter transition team and Ribicoff’s own committee emerged during the spring, the embarrassed senator felt blindsided. Now the pressure mounted on Lance.
In fact it was disclosed only when Bert’s banking problems burst into public view from the Senate hearings that, remarkably, the FBI forensic financial team investigating him never communicated with their FBI colleagues doing the standard background check for his appointment as OMB director. The White House legal counsel’s office wanted to release these facts to show the fault lay with the FBI and not the Carter transition team in going forward with Bert’s nomination. But the Justice Department counseled against it.9
As early as May 1977, the newsmagazines began questioning Bert’s banking practices, but it seemed they were only rehashing old news. Time contended that Bert had serious financial problems because the National Bank of Georgia was going to write off large loans made during his tenure as chairman, and that would bite into the bank’s dividends. Bert warned the president at their regular weekly lunch that the write-offs would make it extremely difficult to honor his promise to sell the stock; the price had alrea
dy dropped from $16 to $11 a share. Carter shrugged off the warning: “I don’t pay any attention to stuff like that, and don’t you either.” With an added sense of urgency, Bert saw the president early the next morning in the Oval Office and warned that “I’ve got a major problem that relates to my economic viability.” He offered to resign to forestall further controversy, straighten out his finances, and then return if Carter wanted him back. Carter remained unfazed: “I’m not about to hear that. That’s foolishness and it doesn’t make any sense. We’ll get the situation straightened out, and you’ll get your stock sold. We’ll get the Senate to give you an extension of your deadline for that.”10
Stocks go up and stocks go down, but Lance’s predicament was more complicated than that. Bert did not bother to tell Carter that the stock was collateral for a personal loan of $3.4 million that he had negotiated with an even bigger bank, the First National Bank of Chicago. The drop in value imperiled the loan itself, and if it was called by the Chicago bank, Bert’s financial empire would probably collapse. On July 11, Carter wrote the Government Affairs Committee asking the senators to lift the year-end deadline on the ground that a forced sale would impose “an undue financial burden” on Lance.11 The die was cast. The president, sidestepping staff members who might have warned him to let Lance leave, entangled himself in the imbroglio.
Now the press would not let either of them escape. On July 24, the day before Ribicoff scheduled a hearing on the extension, the Washington Post published a detailed story raising questions about the Chicago bank loan, which disclosed a financial pyramid: Bert had used a large part of the Chicago loan to pay off a previous loan from a New York bank. That loan had financed the original purchase of his stock in the National Bank of Georgia.
Although it did not come out at that point that both loans had been underwritten by the same collateral, Bert insisted the Chicago loan was perfectly proper, and the committee unanimously agreed to extend the deadline. But this time Ribicoff sought more assurances than he had in January, and asked John Heimann, the incoming comptroller of the currency, to investigate Lance’s banking practices and report by mid-August.
“CARTER’S BROKEN LANCE”
Carter himself was soon drawn in. The New York Times reported early in August that Bert had brought Jimmy to the Manufacturers Hanover Bank in New York in 1975, while establishing a relationship with the bank. It did not matter that the bank’s executive vice president, Llewellyn Jenkins, was telling the comptroller that business was never discussed at the meeting and that Lance simply wanted to “introduce me to an aspiring candidate for the presidency.” But after that meeting Lance’s National Bank of Georgia put more than half a million dollars on deposit at Manufacturers Hanover in New York, and Bert drew on the money for himself. This turned out to be part of a pattern for Bert: moving money from the Calhoun family bank as interest-free loans to other banks, which in turn would lend some of it back to Lance himself.
The Times led the attack through none other than its columnist William Safire, who was fresh from serving as a Nixon speechwriter and had been hired by the newspaper’s publisher specifically to balance its liberal columnists with a conservative voice. Safire won a Pulitzer Prize for his July 21, 1977, column under an obvious pun, “Carter’s Broken Lance,” published before the Ribicoff hearing or the Heimann investigation; the columnist called Lance “a walking conflict of interest” and outlined the dubious banking relationships and pyramid of loans that were shortly to emerge. He kept the story alive with a relentless series of additional columns from July to October 1977, under the lurid headlines “The Lance Cover-Up,” “Lancegate,” “Boiling of Lance,” and “Mr. Carter’s Confession.” Nor did he spare Ribicoff and his senior colleague, Charles Percy, a moderate Republican senator from Illinois, for giving Bert a pass both at his confirmation hearing and on the request for an extension to sell his stock.12
No one was more publicly engaged on a daily basis than Jody Powell, who had to fight back against what he felt were unfair attacks against the president and Bert. When the White House got a tip from an Illinois businessman that Senator Percy had himself used a plane owned by Bell & Howell, his former company in Chicago, to fly back and forth to Washington, the press secretary committed the cardinal Washington sin of attacking an individual senator by leaking the story to the Chicago Sun-Times and thinking he was off the record, calling Percy a “sanctimonious SOB.” Blowing this out of all proportion, television networks played it up and accused Jody of Watergate-style “dirty tricks.”13
Carter was incensed but did not appreciate how much his own anti-Washington, anti-Watergate campaign had played a role in changing the attitude of the press from deference to skepticism and outright hostility. Jody publicly apologized and, with the president’s approval, did so personally to Percy, but the damage was done. Both Bert and Jody knew the incident had hurt Bert badly, and there was a clear reason for the press attention paid to Bert: the high standard set by Carter himself. He had pledged that his preeminent mandate as president was trust, and Bert clearly did not meet that standard.
No player in the Bert Lance drama was thrust into a more thankless role than was John Heimann. Only two days after taking office as comptroller, he was handed the politically charged investigation of Lance’s banking practices. Not that he was unprepared: Heimann, a handsome, debonair investment banker and public servant, had been New York State’s tough banking superintendent. The comptroller’s office was established to regulate national banks in a uniquely independent position from which, although nestled in the Treasury, the comptroller is accountable only to Congress for his semijudicial decisions and cannot be removed by the president who picked him.
Even so, the phone call from Ribicoff and Percy on his second day in office demanding a full investigation of Lance came as a shock. Heimann quickly realized, as he told me later, “I didn’t see how I could win no matter what I did.” He was already facing newspaper stories that his predecessor, Robert Bloom, had improperly given Bert a clean bill of financial health, and the new comptroller wondered whether the agency he had just taken over was corrupt, trying to curry favor with the incoming administration, or just sloppy. He knew he had to do a thoroughly straightforward job because, as he told himself, “If you’re going to go down, do it correctly, funnels burning, flags flying, the orchestra playing, get in full uniform and don’t mess around.”14
So Heimann made an extraordinary decision. He called in implacable inspectors of the Treasury’s own Internal Revenue Service, who quickly concluded—correctly, as it turned out—that Bloom’s letter to Congress clearing Lance contained “misstatements.” Bloom had not revealed all he knew. Heimann spent his first weekend in office reading the Lance files that had been locked in Bloom’s safe. He found that bank examiners had cited Lance for violating numerous banking regulations, although none of the violations were criminal. Heimann then set out on his own investigation, putting sixty officials around the country to work reviewing the many accusations against Lance. Lest he be accused of burying bad news, he delivered his findings to Treasury Secretary Blumenthal, and the information was passed on to Carter through the White House counsel, Robert Lipshutz.
The president slowly buckled under the news. According to a memo by Blumenthal’s deputy, Robert Carswell, the president was at first “very controlled” and said nothing, and by the second meeting was clearly “quite unhappy.” Finally, Carswell said, Carter “didn’t want to have anything to do with this.… [It was] out of his control and he deeply resented” the investigation.15
Now came the unenviable task of confronting Lance himself. Heimann sought the advice of Attorney General Griffin Bell, who was a friend of both Lance and Carter. Bell told him to take along a Justice Department lawyer and court reporter and read Lance his Miranda rights. He did so at 7:00 a.m. on a hot August morning in a Washington hotel room out of sight of the press, and found it personally traumatic to have to read the standard self-incrimination warning for cr
iminal suspects to “the director of the OMB, the president’s best pal.… I thought I would die of sheer embarrassment.” When he asked Lance about pledging the same collateral for two loans, in good-old-boy fashion Lance admitted to “a mistake and an oversight. A lot of things didn’t get done that should have been done. But they were not done on purpose.” Heimann decided not to press Lance about using the bank’s airplane to fly to the 1976 Democratic National Convention carrying a case of champagne bought with bank funds, one of many borderline practices.16
The next day Blumenthal summoned me to his office to inform me that while Heimann had not found anything illegal, his report on Lance would detail “borderline shoddy banking practices,” including numerous personal loans that had not been reported to the banking regulators. “Lance can’t survive,” he said.17 I told him to inform the president about the facts of the incomplete report but nothing more. I knew Blumenthal was already viewed with suspicion by the president and his political entourage.
Nevertheless Mike visited me in my West Wing office and, with an added sense of urgency, repeated, “I don’t see how he can survive.” The wise old pol Robert Strauss had also told me something similar. Both were clearly enlisting my help in recommending that the president cut his losses as soon as possible. At a minimum I should have brought the news to Lipshutz and to Ham Jordan. I did not do so in order to protect Mike, but also to avoid appearing disloyal to Bert. Although I understood Carter’s strong feelings, I frankly did the president a great disservice in remaining silent.18
The comptroller and his team completed two detailed reports within sixty days, both landing in August, while most of official Washington was on vacation. The general tenor could not have been a surprise to the White House, and the reports should have raised enough warning flags to make it clear Bert had to go—and fast. Carswell had already warned the president about Bert’s dealings with Manufacturers Hanover—the bank to which Carter had accompanied Lance—although Heimann did not press that case. But he cited “quite inconceivable” banking practices, most egregiously Bert’s pledge of the same stock as collateral for two loans, as well as other loans to Bert by banks where his own family bank had deposited money.19 Heimann tried to make his report “very dry reading” while leaving no doubt that Bert had violated sound banking principles. As Heimann later explained, while Bert shuffled money from one account to another, “he never stuck it in his own pocket.” Bert’s defense was that small-town bankers and lawyers did that all the time, but Heimann argued that Bert had bent these local norms out of shape and used the bank “as a personal fiefdom rather than as a trustee for other people.”20
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