Part 8 (1/2)

By 1984 Madison was warned by federal regulators to tighten its practices, strengthen its management, and add $3 million to its capital base. McDougal did strengthen management--by hiring the federal regulator as Madison's vice president.*72 Still, McDougal found himself in an increasingly tight spot. Like all managers of a pyramid scheme, he convinced himself that if he could just get a reprieve, everything would balance out in the end.

A momentary break came in January 1985, when Governor Clinton replaced the state securities commissioner with Fayetteville friend and longtime supporter Beverly Ba.s.sett. As a lawyer for a Little Rock firm, she had done work in the past for Madison. In March the governor squared the circle by appointing Madison's chief executive officer to the state S&L board.

In April, Hillary became the official representative of Madison before the state securities commission. By now, the Clintons had managed to create a parade of friendly faces all along the way for their business partners. Six days later, Hillary contacted Ba.s.sett on behalf of Madison.

Around this time, McDougal wrote an overdraft in the form of $30,000 from a Whitewater account at Madison. Then he raised a like amount of money--$35,000--to ”retire the deficit,” as the young governor put it. The deficit in this case was a $50,000 loan Clinton had taken out from the Bank of Cherry Valley to buy a battery of television ads to fend off a challenge in the 1984 election. McDougal generously held a fund-raiser in the Art Deco lobby of Madison Guaranty.

McDougal later paid himself a similar amount as a ”bonus” from Madison. Given the spotty records from the fund-raiser, and conflicting accounts (Fulbright's signature was on one check, but he said he never attended), it is likely that McDougal simply made most of Clinton's contributions himself, repaying his overdrawn account from the Madison coffers.*73 This was one of several enormous favors, saving the governor from having to pay the Cherry Valley loan he had personally guaranteed.

In May, Ba.s.sett informed Madison's attorney in a ”Dear Hillary”

letter that the legal opinion she had written on a McDougal proposal to recapitalize Madison by issuing preferred stock was acceptable.

The recapitalization plan, selling stock that was essentially worthless, was approved. McDougal was cleared to add another layer to his pyramid.

Another part of this tangle of needs and interests was Hillary's need not just for money, but to show her Rose partners that she could bring in clients. In one 1993 account to the Los Angeles Times, McDougal said the governor jogged by his office one humid morning in August 1984 and asked McDougal to send business to Hillary. This story rings true, complete with a novelistic detail about a quietly seething McDougal listening while the governor's sweat-stained thighs ruined an expensive leather chair. By another account, Hillary came to the McDougals in April 1985 and asked for their business. It is likely that Hillary had sent Bill. When he did not succeed, she made the appeal herself. ”One lawyer's as good as another,” McDougal concluded, and started paying Hillary and Rose $2,000 a month.

By 1986 the fact that Madison was a house of cards could no longer be disguised. Federal regulators acted to remove McDougal. Madison ultimately collapsed, costing U.S. taxpayers $60 million.

Given such a record, one would think that Madison and related work would have been considered radioactive by Hillary and her partners.

In fact, Vince Foster solicited business from the Federal Deposit Insurance Corporation (FDIC) for S&L work, including Madison. The work was only secured after Foster (or perhaps someone close to him) wrote a letter denying conflicts of interest to the FDIC. ”The firm does not represent any savings-and-loan a.s.sociation in state or federal regulatory matters,” it said. Unstated was the fact that the firm had had such representations in the recent past.

In this way, Hubbell would earn $400,000 for Rose, leading the FDIC to sue Madison accountants. When they learned of the deception, federal regulators were astonished and outraged.*74 They had been duped by a simple semantic trick, like Bill Clinton's later denial of a s.e.xual relations.h.i.+p with a White House intern on the ground that the affair was no longer ongoing (”it depends on what the meaning of 'is' is”).

Whitewater is often presented as an impenetrable mora.s.s. In truth, it is quite simple. Hillary's law career had been helped by McDougal's business, and Clinton had been personally rescued by McDougal's willingness to pay down a Clinton political debt. Once Hillary becane Madison's lawyer, she helped obtain approval of McDougal's own rescue plan--a recapitalization based on stock sales that were but another layer of McDougal's pyramid scheme. She represented McDougal before a state regulator who had, herself, done legal work for him. The only way the arrangement could have been tighter would have been for all partic.i.p.ants to have been cousins.

The great irony is that much of the subsequent scandal and embarra.s.sment over Whitewater could have been avoided if Hillary had accepted a generous offer from McDougal in 1985. By then it had become clear to all that Whitewater was a failure. The Clintons, along with their partners, were liable for tens of thousands of dollars in interest payments on the original loan. And the inability of the development to pay property taxes had created a potential embarra.s.sment for the governor. The Clintons seethed over a newspaper listing of their names as citizens who were delinquent on their taxes.

McDougal, however, gallantly offered to a.s.sume all remaining obligations and pay all taxes if the Clintons would sign over to him their half of the investment. The governor recognized a good deal when he saw it. McDougal was offering to take a small fortune in debt in return for a piece of paper.

Such generosity was not understandable to Hillary. It triggered her greed, and then suspicions--then made her angry. After all, she was still counting on the proceeds from the Whitewater deal. According to James B. Stewart's account in Blood Sport, Hillary shouted, ”Jim told me that this was going to pay for college for Chelsea. I still expect it to do that!”*75 In another account told to Time, Susan McDougal recalled Hillary's saying, ”We own half of it, and we are not getting out of it. It's incredible that partners would be asked to sign over their stock.”

”This is Jim McDougal's project, his idea, his money! Don't you understand that I don't want anything,” Susan pleaded. ”It's all going to Jim. It's morally wrong for you not to give it to him.”

Susan broke down. ”You're terrible people, after all he would and did do for you, that you wouldn't do this.”

Hillary told Susan she would not be ”blackmailed.”*76 THE W FILES.

Hillary would also do everything she could to avoid being called to account when Whitewater became the subject of a Congressional investigation. Shortly after the Whitewater investigations had begun, two college students were hired to shred piles of materials from the Rose Law office of Vince Foster. Foster--then six months in his grave--had been in charge of the Clintons's personal legal affairs once they moved into the White House. His files could not conceivably have been shredded without the Clintons' consent.*77 Investigators cannot prove, but do not have any doubts, about who ultimately ordered the shredding of those files.

Then there were Hillary's own papers. In the move from Little Rock to Was.h.i.+ngton, Hillary took great care that her papers were personally guarded by someone she trusted.

This collection of files had started as part of the ”Betsey files,”

part of the vast compendium of private intelligence and personal papers held by Governor Clinton's chief of staff, Betsey Wright. For a while, Webb Hubbell kept them for safekeeping in the bas.e.m.e.nt of his house. Later they would be transferred to private attorney David Kendall.

Some papers, whether from the Betsey files or somewhere else, years after they had been subpoened, made a mysterious appearance in the White House in January 1996. Carolyn Huber, who had worked as a clerk for Hillary at Rose, and then came to Was.h.i.+ngton with her to handle correspondence, suddenly discovered the records in a White House residence ”book room.”

I deposed Huber during congressional investigations into the White House Travel Office firings. Huber testified that in the course of transferring correspondence between her office and the first lady's, Huber took a stack of papers from the third-floor living quarters of the White House, just off from Hillary's office,*78 and returned them to her East Wing office. Huber didn't look at them again until several weeks later. What she saw forced her to call Hillary's lawyer, then her own lawyer.*79 They were Hillary's itemized legal work for Madison Guaranty, under subpoena for several years, the existence of which had been repeatedly denied by the White House.

Hillary had told investigators that she had ordered all Whitewater records and Madison records shredded in the mid-eighties. This had been done ”to save money by reducing the number of closed, stored files,” Hillary had written to Whitewater investigators.*80 Now, like the ghost of Christmas past, these records had reappeared, almost at the foot of her bed, to accuse her.

Moreover, Huber said she was certain the papers had been placed there recently--which suggested that Hillary had been reviewing the papers all the while she had been denying their existence.

Hillary told investigators that she had done virtually no legal work on the Madison account. Now the billing records showed that she had performed sixty billable hours for Madison with state regulators.

She had discussed legal matters with Madison executives on sixteen occasions, holding twenty-eight conferences or phone calls with Rose lawyers on Madison accounts. Also included in the billing records were details of her involvement with Castle Grande, a failed development that wound up costing taxpayers $4 million.

Castle Grande had been structured in such a way as to encourage low-income customers to buy swamp land with Madison loans, with no cash down. Most buyers would eventually have to default, something all partic.i.p.ants were in a position to foresee. These defaults, in turn, would take almost $4 million from the taxpayers who were the ultimate guarantors of the S&L. Hillary played a role in Castle Grande, arranging a complicated payoff deal to Webb Hubbell's obstreperous father-in-law, Seth Ward.

”I don't believe I knew anything about [Castle Grande],” Hillary said in 1994 to federal investigators from the Resolution Trust Corporation. Now her own billing records showed that she had done thirty hours of legal work on that very development.

Harold Ickes, tough New York lawyer and iron-fisted warrior for the Clintons, sought to get the word to Arkansas securities commissioner and FOB Beverly Ba.s.sett Schaffer to stay on the same page as the White House. ”If we f.u.c.k this up, we're done,” he said.*81 Hillary had sworn that she had done no work on Castle Grande. When presented with irrefutable evidence, she said that she had known the project under a different name, IDC. She was refuted again when David Hale, a munic.i.p.al judge who had loaned $300,000 to Susan McDougal, swore that he had spoken to Hillary about Castle Grande.

The burst of revelations left the White House reeling, the staff anxious to learn from the Clintons what land mines were on the path ahead. But the Clintons told their own defenders as little as necessary, leaving the White House staff on the defensive. The White House spin strategy quickly became to dismiss as ”old, recycled, rehashed news” on a ”failed land deal” all the new exposes of Hillary's denials. The records, even with Hillary's fingerprints on them, ultimately proved nothing, the spin doctors said. David Hale was a felon and a proven liar. It was his word against the first lady's.

”Perjury takes intent,” said White House spokesman George Stephanopoulos. ”Simply describing plots of land by a different name when both names were in common usage is not perjury by any stretch.”*82 The idea of sending a first lady to prison on obstruction of justice charges was so distasteful that it proved the final defense against federal investigators.

The matter was dropped. Hillary won the day, and the story of the mysterious records became a part of White House lore.

HILLARY'S SECRET POLICE.

In the tangle of Arkansas business and political interests, if one pulls at a thread, even the unlikeliest string, it can unravel much of the whole ball. One of these threads is Larry Nichols, the father slighted by Hillary in a child custody case. Nichols is often characterized as disgruntled, an understatement akin to saying that Brutus was disaffected from Caesar. Like so many other Clinton critics, his claims were undermined by a scandal of his own--the more than six hundred ”contra calls” he made on a state line. Even in his disgrace, however, there is something to learn about the power of the Clinton machine and what ex-Clinton confidant d.i.c.k Morris calls its ”secret police.”

What is remarkable is not that Clinton accusers themselves have feet of clay. It is that they are so swiftly exposed and attacked the moment they speak out against Bill or Hillary Clinton. In this respect, the fate of Nichols greatly resembled that of Steve Clark, who followed Clinton into office as attorney general and attempted to follow him as governor. Clark, tired of waiting for Clinton to leave office, prepared to challenge Clinton's hold on the governor's mansion, charging that members of the Arkansas Development Finance Authority. (ADFA) were being offered six-figure bribes. His accusations threatened to throw a spotlight on a sweetheart deal many in the capital preferred to only whisper about--how William Kennedy III at Rose had brokered an ADFA deal in which this public ent.i.ty financed the sale by Stephens, Inc., of thirty-two nursing homes with an $81 million tax-exempt bond.

Clark alleged that the nursing home chain had been sold for an inflated price, which resulted in higher costs eventually being pa.s.sed on to aged residents.*83 Not long after launching his attack, Clark himself came under a.s.sault. It was revealed that he had made personal charges on his state charge card, a scandal that led to his arrest and disgrace.

This is a now familiar pattern for Bill and Hillary Clinton.

As president, when facing a trial in the Senate on impeachment charges, Clinton's accusers in Congress saw the full force of the Clinton counter-a.s.sault. s.e.xual secrets were revealed by a troika of private detectives, disseminated by professional smear artists (like Sidney Blumenthal), and paid for by p.o.r.nographers (like Larry Flynt).

The strategy has been replayed over and over--Nixon's ”enemies list”

strategy played at a thermonuclear level, with no holds barred: Take on the Clintons, and you're in for a world of hurt.

In the case of Nichols, despite his damaged credibility, he did reveal unpleasant truths about the governor and his relations.h.i.+p to the ADFA.

The ADFA was conceived as an agent of regional industrial policy.

Using the pension money of state workers, it was intended to act as a development bank to bring businesses and jobs to Arkansas.

About a tenth of the fund was to be invested in the state, and this being Arkansas, it was often invested in dubious ways. Nichols's lawsuit alleged the governor used ADFA as way to launder money to bond kingpin--and convicted cocaine dealer and Clinton supporter--Dan Lasater and other high-rollers, as well as a personal slush fund to pay for fun-time pursuits with women, including Gennifer Flowers.

The money-laundering charge was potentially fatal to Clinton.