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.

McDougal bought Madison Guaranty Savings & Loan in 1981. Four years later Governor Bill jogged into McDougal's office one morning and implored him to send some action HRC's way. She was under pressure at Rose for not bringing in enough business. McDougal duly put HRC on a $2,000-per-month retainer as adviser to his S&L. By the mid-1980s Madison Guaranty was in poor shape and under pressure from federal regulators to tighten up and increase its cash reserves. McDougal had run out of banks to borrow money from, and so HRC came up with the idea--unprecedented in Arkansas--of a preferred stock issue. Permission was duly obtained for this unusual financing from the relevant state regulator, Beverly Bassett, a friend of the governor's who had--before preferment as Arkansas Securities Commissioner--been a lawyer in Jim Guy Tucker's firm. There she had worked on matters involving Madison Guaranty, thus making everything as cozy as could be.

One of the Clintons' constant refrains from 1992 onward has been that in her capacity as partner in the Rose law firm, HRC stood at arm's length from any dealings with state agencies. In fact, HRC was doing something much more lucrative, namely representing corporations on matters pending before state regulators. Having worked as a lawyer on Madison Guaranty business, Bassett knew very well the S&L was on the rocks. It was only because HRC made the call to her that Bassett gave the official thumbs-up for a preferred stock issue. Fortunately for any possible investors, Madison Guaranty was taken over by the feds, and McDougal kicked out, before the offering was made.

In 1994 HRC swore in a deposition to government investigators at the RTC that she A) never solicited any work from McDougal, B) had no role in the prospective preferred stock matter, and C) did not attempt to influence Beverly Bassett. Though her testimony has not been published, she presumably swore the same thing in her recent grand jury appearance and in her deposition to Starr. If the independent counsel persuades the grand jurors that perjury or obstruction of justice occurred, the preferred stock offering is one source of a possible indictment of HRC.

A similar indictment could stem from HRC's work on the Castle Grande deal. To the fretful gaze of McDougal in 1985, Castle Grande seemed like salvation for his beleaguered bank. The Castle Grande property was a tract of several hundred acres just south of Little Rock; the development plan involved a mix of industry, a shopping center, and mobile homes. There was a problem. Under state law the Madison subsidiary planning to handle the property could not be its sole owner. In the scam that apparently transpired, there were four principals: McDougal, Jim Guy Tucker, HRC, and Seth Ward, the father-in-law of Web Hubbell, the man in charge of the litigation shop at Rose law.

According to both Stewart and the Pillsbury, Madison & Sutro report, Ward was set up as a fake partner. As described in the report on the RTC's investigation into Madison, the deals that ensued represented "a series of flips and fictitious sales." Madison gave Ward an interest-free $1.15 million loan, for which he had no liability. The loan was used to buy a share in the Castle Grande property, thus enabling the whole transaction that was intended as Madison's salvation (along with the preferred stock issue). Ward was handsomely compensated for his role as ghost dancer, getting a 10 percent commission on all the sales from that property--in the end totaling $300,000. In addition, Madison magnanimously paid Ward $400,000 for a 22-acre parcel in the property, twice its market value.

For his part in this insider dealing, Jim Guy Tucker--lieutenant governor in Clinton's last gubernatorial term and then governor--has been reindicted. (The first indictment was thrown out by a Clinton-appointed judge.) For their role in Castle Grande and other matters, the McDougals are currently on trial. HRC has professed complete ignorance. "I don't believe I knew anything about any of these real estate parcels and projects," she proclaimed in her deposition to the RTC. The RTC and the independent counsel asked Rose for billing records to buttress HRC's assertions. Both the firm and the White House claimed they could not be located. Two days after the statute of limitations expired on the Castle Grande dealings, the records were discovered on a table in an office used by HRC to store papers in their private White House residence. The records show she billed Madison for 60 hours of work on the Castle Grande deal.

Not far from the Castle Grande property was a 500-acre parcel owned by International Paper, a timber company and the largest landowner in Arkansas. If Castle Grande was to help bail out Madison Guaranty, this property of International Paper was to be the salvation of the endlessly hemorrhaging Whitewater Development Corporation (WDC), still co-owned by the McDougals and the Clintons.

Ten miles southwest of Little Rock, the IP parcel had been high-graded (i.e., the most valuable timber taken out) and it was scheduled for tiny subdivisions for low-income folk and senior citizens. International Paper was offering the property to WDC for the very attractive price of $1,000 per acre. Casting about for a loan to finance the purchase, McDougal lit upon David Hale, a player in Democratic circles in Little Rock who was appointed municipal court judge by Clinton--and, by a fortunate concatenation of circumstances, the owner of Capital Management Services, a company licensed by the Small Business Administration to dispose of low-interest loans.

In a plea bargain accompanying indictment and conviction for his role in this affair, Hale has claimed that Governor Clinton twisted his arm to set up an SBA loan to Whitewater, which duly came through within two days, thus remaking government well in advance of the Clinton-Gore administration. The $300,000 from the SBA to the Whitewater Development Corporation went in part as down payment for the International Paper parcel, which accepted a note from WDC for the balance.

The sale went through in March 1986. By October 1987 Whitewater Development had defaulted on its payments. International Paper filed a foreclosure lawsuit, naming the Whitewater Development Corp. and the McDougals; conspicuously missing from the suit were the names of Bill Clinton and HRC. There is no doubt that International Paper was doing the Clintons an enormous favor by offering them a cheap price for commercial property near Little Rock, and by the subsequent omission of their names from the foreclosure suit. During this period in the mid-1980s, Governor Clinton signed what became known as the IP bailout. This was the Manufacturer's Investment Sales and Use Tax Credit, which yielded the timber companies in Arkansas, including International Paper, $400 million in tax breaks.

By the time WDC defaulted on its payments, McDougal was a broken man, financially and psychologically. HRC sought and was gladly given power of attorney over the WDC. But from the events that followed, it appears that HRC was less competent to handle such matters than McDougal. For starters, under her stewardship Whitewater Development Corporation failed to file corporate income tax records for three consecutive years. These returns were eventually completed and filed by Vince Foster in the spring of 1993.

More serious were HRC's dealings with the banks holding the Whitewater mortgage. Despite repeated pleas from the McDougals and the Flippen bank, the Clintons refused to submit personal financial statements. When finally forced to comply or face the calling in of the loan, Hillary prepared a document for the Citizens Bank and Trust Co. that greatly overestimated the value of the Whitewater investment and their personal net worth. For example, HRC said the couple's stake in Whitewater was $200,000 when, in fact, the value of their investment was closer to $40,000. All told, HRC submitted at least three false financial-disclosure documents. This is a violation of federal law. Independent counsel Kenneth Starr has used similar violations to secure indictments against other Whitewater players, including Jim Guy Tucker.

In the mid-1980s, the Citizens Bank at Flippen was bought by the larger Twin Cities Bank of Little Rock. In 1986 the loan managers evaluated the Whitewater development and concluded that the balance of the loan far exceeded the value of the property. They recommended that the loan not be renewed. This recommendation was overruled by the executive officers of the bank, who at the time were seeking a favorable ruling from the Clinton administration on changes to state banking practices. The ruling soon went in Twin Cities' favor. Moreover, one of the vice-presidents at Twin Cities was Margaret Davenport, a close friend of HRC. On HRC's recommendation, Bill Clinton appointed Davenport to the board of the Arkansas Development and Finance Authority, whence she steered several large bond issues to her bank. In return, HRC and the Rose law firm were rewarded with business from Twin Cities Bank.

HRC thus stands exposed to indictment from the grand juries both for substantive crimes and for obstruction of justice. For these grand jurors, sitting in Little Rock and Washington, D.C., comparisons with Watergate or supposed absence of smoking guns are presumably not the issue. What they are looking at is a series of unsavory financial transactions involving the First Lady and her subsequent deceptions about her role in them. It has always been evident to anyone looking at the evolution of the Arkansas Development and Finance Authority, and at Bill Clinton's magical capacity to come up with political funding in moments of crisis, that there were many skeletons in Little Rock under the flimsiest of locks. Even today the press is forgiving. But now HRC's future and maybe Bill's are in partial fee to those grand jurors of Little Rock, who have known the couple a long time.

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