Whitewater's depressing familiarity

January 14, 1994|By Robert Kuttner

THE Clintons have belatedly bowed to bipartisan pressure for a full airing of the Whitewater affair.

Now they should give the investigation their full cooperation, the sooner the better.

As students of Watergate will recall, it was the presidential cover-up that undid Richard Nixon, not the original break-in by low level henchmen.

Unfortunately, the Clintons -- both lawyers -- have been handling this affair as if it were some obscure private litigation, in which the lawyerly game is to thwart the other side by delay, obfuscation and seclusion of potentially damaging information. But when the credibility of president of the United States is at stake, these tactics backfire.

It makes people wonder what he is hiding.

Depressingly enough at the heart of Whitewater is yet another failed savings and loan. Central to the great S&L debacle was the corruption of financial regulation by politicians who took favors from bankers while they intervened on behalf of lax supervision that eventually cost the taxpayers many billions of dollars.

The deregulation of the late 1970s and early 1980s opened the floodgates to such conflicts of interest, by virtually inviting self-dealing on the part of S&L executives and friendly politicians. Previously, S&Ls had been dull, non-profit institutions, regulated almost like public utilities.

Regulation had restricted the ability of S&L executives to feather their own nests with insured depositor funds, and S&L failures were rare.

An old industry joke had it that S&L officers followed the "3-6-3 rule": take in deposits at 3 percent, make mortgage loans at 6 percent and be on the golf course by 3 p.m.

But by the early 1980s deregulated S&L's were high-flying, for-profit institutions permitted to outbid each other for deposits and then invest depositor money in speculative real estate ventures sponsored by their own officers.

Real estate has always been a get-rich-quick temptation to politicians.

Developers depend on public officials to approve zoning changes, permits, subsidies, guaranteed loans, and to help assemble building sites.

There is a corrupt commingling of public and private interest whenever a developer offers a politician a piece of the action. In the 1980s, deregulated S&L's joined this sordid nexus of real-estate dealing and politics -- using government-insured money.

While the ideology of deregulation was characteristically Republican, the corruption was bipartisan. As figures who normally defend regulation, willing Democrats were especially attractive to corrupt S&L executives.

The careers of Democrats such as Sen. Alan Cranston, House Speaker Jim Wright and House Whip Tony Coelho all fell afoul of the nexus of real estate deals, S&L favoritism and campaign contributions.

While the picture is not yet complete, enough of the Whitewater story is already on the public record to suggest a depressingly familiar pattern. A developer offers a rising politician a chance to make a lot of money from a relatively small personal investment. The deal goes bad, but the developer subsequently helps the politician by throwing a big fund-raiser to pay off a campaign debt. The politician apparently reciprocates by helping the developer with regulatory problems.

In the Whitewater affair, a friendly regulator appointed by then-Gov. Bill Clinton allowed developer Jim McDougal to prolong the agony of his failing savings and loan, Madison Guaranty, by approving an unorthodox scheme to sell preferred stock. Armed with that regulatory approval in 1985, Mr. McDougal increased the shaky S&L's liabilities from $49 million to $125 million, and upped the eventual cost to taxpayers to some $60 million when Madison finally failed. To add to the aura of conflict of interest, the lawyer who petitioned the regulator to approve the stock sale was Hillary Rodham Clinton.

What is not yet clear is how much actual cash the Clintons invested in the Whitewater development, how much they borrowed from Mr. McDougal's bank and S&L, and how much Mr. McDougal diverted from the S&L to Whitewater.

There are also allegations that some of the $35,000 supposedly raised by Mr. McDougal to defray Mr. Clinton's 1984 campaign debt did not come from bona fide donors but was siphoned from the failing S&L.

This is not the stuff of impeachment, nor has anyone accused the Clintons of criminal misconduct. Whitewater is merely tawdry. But it surely dims the Clinton image of high-minded statesmanship and suggests instead rather grubby ordinary politicians.

Still, unless there are startling new disclosures, it is a scandal from which Bill Clinton can recover -- as long as he doesn't compound his troubles by stonewalling.

It is a mark of the maturity of the American public that the latest charge of extramarital sex was not taken seriously, while this financial affair is refusing to go away. In the supposed sex scandal, the Clintons were right to claim an improper assault on their privacy. The Whitewater matter is the public's business.

In all likelihood, a candid investigation will tarnish Bill Clinton's luster but not cripple his presidency.

Playing lawyerly hide-and-seek could cause lasting damage.

Robert Kuttner writes a column on economic matters.

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