The First Lady Undone: Is Hillary a Crook?

Some time later this year a situation unique in American history may arise: the criminal indictment of a president's wife, Hillary Rodham Clinton. Since 1994 a federal grand jury has been sitting in Little Rock, Arkansas, reviewing the Clintons' financial dealings from 1978 through 1992. The episodes submitted to their scrutiny by independent counsel Kenneth Starr include the Clintons' involvement in the Whitewater Development Corp.; HRC's legal representation of James McDougal's failing Madison Guaranty Savings & Loan; Madison's possible financing of Clinton campaigns; HRC's role in illegal real estate transactions in the Castle Grande development; the Clintons' fraudulent financial statements submitted in loan applications in the 1980s; and more generally, the political cronyism and favoritism the Clintons took part in during their sojourn in the governor's mansion in Little Rock.

Meanwhile, a separate federal grand jury in Washington, D.C. is listening to Starr's presentation of other episodes, including: "Travelgate"; the removal of Whitewater documents from Vince Foster's office; and the reappearance of HRC's billing records involving her work on the Castle Grande project while at the Rose law firm. HRC had previously testified under oath in a federal investigation by the Resolution Trust Corporation that she had nothing to do with Castle Grande.

Pending the explosive impact of an actual indictment, the public view of Whitewater and related matters seems to derive from the consensus of the press outside of committed foes of the Clinton administration such as the Wall Street Journal editorial page. In this view, Whitewater constitutes "a cover-up without a crime." Hitched to this comfortable sentiment is the proposition that whatever the Clintons' past peccadilloes, they occurred in the alien subculture of Arkansas, before Bill and Hillary stepped onto the stage of national history.

The most thorough survey of the Clintons' dealings undertaken by a journalist--James B. Stewart's Blood Sport: The President and His Adversaries--has elicited precisely this reaction. Discussing Stewart's 500-page book, Maureen Dowd concluded in her New York Times column that there was nothing new, no smoking gun.

But armed with the details furnished by Stewart and the 1,000-page Pillsbury, Madison & Sutro report on Whitewater to the RTC, submitted on December 28, 1995, it is possible to lay out a simple narrative that's devastating to the Clintons. In our last column on the first family, we discussed Whitewater in the context of Bill Clinton's relationship to the big timber companies. Here we concentrate more on HRC's performance, which--aside from the unflattering light it sheds on the First Couple--may have a very serious impact on her husband's chances for reelection.

"Whitewater" represents a pervasive character trait of the Clintons: the exchange of money for political favors. It also represents a trait that caused an uproar when William Safire drew attention to it last year: namely, HRC's untrammeled propensity to tell lies.

Whitewater began with a frantic appeal from the Clintons to their friend McDougal for money at a time when Bill Clinton was running for governor in 1978. McDougal duly located the Whitewater property outside the town of Flippen in the Ozarks and got the investment off the ground. Payback for McDougal was not long postponed. Elected governor three months later, Clinton appointed McDougal chief financial advisor in the new administration. With even greater speed the Clintons and the McDougals reneged on commitments to make a 10 percent cash payment to a Flippen bank against 90 percent financing of their Whitewater purchase. Then they got another below-market-rate loan from a Little Rock bank, again in exchange of a marker against political favors. All these transactions breached Arkansas law, represented insider dealings beyond the reach of ordinary mortals, and constituted one more straw on the caving spine of the Savings & Loan industry. Frank Burge, a loan officer at the Citizens Bank and Trust Co. of Flippen, later told Stewart that when he presented the McDougal/Clinton deal to his board, he made the assumption--accepted by all present--that the plan was to have wealthy backers of Clinton "buy the lots at highly inflated prices as a clandestine means of funneling money into the governor's pocket, thereby gaining influence."

As matters turned out, a survey of the Whitewater property got delayed, and then Clinton was rejected by the voters in 1980. Interest rates soared, killing the housing market. The balloon payments on both sets of loans began to wipe them out.

HRC began her notorious trading in the commodities futures market at the same time as the Whitewater purchase, made her $100,000 courtesy of Tyson's Foods executives, and looked to Whitewater as a tax shelter for her gains, assuredly ill-gotten. In their federal income tax returns for the years 1978, 1979, and 1980, the Clintons deducted not merely interest payments on their Whitewater mortgages but also principal--$20,000 was the illegal portion of the deduction--thus helping offset her gain on the commodities scam. This was the reason the Clintons refused to release their tax returns for 1978 and 1979 during the presidential campaign and beyond, until 1994.

The morning after Bill Clinton's defeat in 1980, McDougal told Stewart he got a desperate call from HRC, saying, "You need to send us money. We need it right now, and we need all you can send." McDougal remarked sourly to his wife Susan after the call that they had been subsidizing the Clintons' share of the investment for the previous two years. The pattern continued. As Whitewater's financial condition deteriorated, McDougal, fearing that a bankruptcy might tarnish Clinton's political image, offered to buy the Clintons out of the deal. On four separate occasions Hillary adamantly refused, presumably because Whitewater was useful as a tax shelter, especially under HRC's generous estimate of what constituted a legitimate deduction. At tax time, millions of middle class Americans thankfully review their banks' reports of interest payments on mortgages. Very few of them--particularly not corporate lawyers giving tax advice to banks, as HRC was--confuse interest and principal as HRC later claimed she had.

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