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<p>JOE CONASON & GENE LYONS THE HUNTING — of — HILLARY Adapted and updated from The Hunting of the President: The Ten-Year Campaign to Destroy Bill and Hillary Clinton With a new introduction The hunTing of hillary. Copyright © 2015 by Joe Conason and Gene Lyons. All rights reserved. No part of this e-book may be used or reproduced in any manner whatsoever without written per- mission except in the case of brief quotations embodied in critical articles or reviews. Published by Eastern Harbor Media, LLC. 37 West 17th Street, New York, N.Y. 10011. Designed by Sam Reisman. Cover design by Jillian Burr. ISBN: 978-0-692-43696-7 First edition published 2000 by Thomas Dunn Books, an imprint of St. Martin’s Press, as The Hunting of the President: The Ten-Year Cam- paign to Destroy Bill and Hillary Clinton. www.nationalmemo.com – of – the hUNtING hILLARY JOe CONASON & GeNe LYONS ADAPteD AND UPDAteD FROM The Hunting of the President: The Ten-Year Campaign to Destroy Bill and Hillary Clinton JOE CONASON is editor-in-chief of The National Memo, the online newsletter and website that he co-founded with his wife, Elizabeth Wagley, in 2011. He also serves as editor-at-large of The Investigative Fund at The Nation Institute, where he oversees award-winning reporting projects that appear on a wide variety of print, online, and broadcast platforms. Conason has covered every U.S. presidential election since 1980 (and nearly every presidential scandal as well). During the Clinton presidency, his reporting on the Whitewater investigation brought his work to national media attention. His articles have appeared in Esquire, The Nation, The New Republic, The Guardian (London), Harpers, and The New Yorker, among dozens of other periodicals and newspapers. He appears frequently as a commentator on television and radio and his columns are distributed nationally by Creators Syndicate. From 1992 to 2010, he wrote a popular political column for The New York Observer. He also served as the Manhattan weekly’s executive editor from 1992 to 1997. He wrote weekly columns and a blog for Salon.com, the Internet magazine, from 1998 to 2010. Conason was previously a national correspondent and columnist for The Village Voice, where he covered stories from City Hall and Capitol Hill to Tiananmen Square. While reporting for the Voice he won the New York Press Club’s Byline Award for breaking news coverage. In 1985, his exposé of Ferdinand Marcos’ hidden Manhattan real estate holdings caused an international sensation, leading to congressional hearings and the election that preceded the Philippine dictator’s overthrow, which he reported from Manila. He is the author of Big Lies: The Right-Wing Propaganda Machine and How It Distorts the Truth (St. Martin’s Press, 2003), and (with co-author Gene Lyons) The Hunting of the President: The Ten-Year Campaign to Destroy Bill Clinton (St. Martin’s Press, 2000). Both books About the Authors The Hunting of Hillary | v were New York Times bestsellers. He is currently working on a book about Bill Clinton’s post-presidency for Simon & Schuster, slated for publication in 2016. Joe Conason graduated from Brandeis University in 1975 with honors in history. He was born in New York City, where he still lives with his wife and their two children. GENE LYONS has written a column for the Arkansas Times since 1994. He previously spent five years as general editor at Newsweek, and was associate editor at Texas Monthly for a year. In 1980, he won the National Magazine Award for Public Service for the Texas Monthly article “Why Teachers Can’t Teach.” A prolific author, Lyons has written hundreds of articles, essays, and reviews for such magazines as Harper’s, The New York Times Magazine, The New York Review of Books, Entertainment Weekly, Washington Monthly, The Nation, Esquire, Slate, and Salon. Lyons graduated from Rutgers University in 1965, and earned a Ph.D. in English from the University of Virginia in 1969. He taught at the Universities of Massachusetts, Arkansas, and Texas before becoming a full-time writer in 1976. A native of New Jersey, Lyons has lived in Arkansas with his wife Diane since 1972. Their two adult sons live in the Little Rock area. The Lyons live on a cattle farm near Houston, Ark., with a half-dozen dogs, several cats, three horses, and a growing herd of Fleckvieh Simmental cows. Books: The Higher Illiteracy (University of Arkansas, 1988), Widow’s Web (Simon & Schuster, 1993), Fools for Scandal (Franklin Square, 1996) and, with Joe Conason, The Hunting of the President: The Ten Year Campaign to Destroy Bill and Hillary Clinton (St. Martin’s, 2000). In 2004, Mozark Productions released a movie version of The Hunting of the President. vi | Contents About the Authors iv Contents vi Introduction vii From Trivial Things, A National ‘Scandal’ Rises 1 Swindling (And Smearing) The Clintons 11 U.S. Attorney Blocks Partisan Political Probe 18 The Lonely Death Of Vince Foster 22 A Tainted Accuser – And His Far-Right Friends 27 An Old Enemy From ‘White Haven’ 33 A ‘Totally Inappropriate’ Call To The FBI 37 Another Watergate? Media Dreams And Frenzies 41 The Strange Secrets of Richard Mellon Scaife 45 Praising Robert Fiske – Only To Bury Him 50 Appointing A Not-So-Independent Counsel 58 Stirring Paranoia With False Prophets (And Real Profits) 66 A $100,000 Windfall – And A $9 Million Myth 77 Newt Gingrich’s Contract – On The Clintons 81 Alfonse D’Amato’s Ethical Crusade 87 Star Witness Faints At Hearing – And Nobody Notices 95 As National Media Turn Away, A Moment Of Truth 102 Billing Records, Lost And Found – And Exculpatory 109 A Pulitzer Winner’s Bloody Blunders 115 How Starr Fumbled – And Fled 122 After Five Years, Nothing ‘Substantial And Credible’ 135 The Clintons, Their Enemies, And The American Public 137 Appendix: Where Are They Now? 144 | vii For Republicans, the strong likelihood that their presidential nominee will face a Democrat named Clinton is not a happy pros- pect—especially when that Democratic candidate could make histo- ry as America’s first female president. Which must be why they have been at work for many months already, seeking every possible means to denigrate, demean, and discredit Hillary Rodham Clinton. It is important for voters, perhaps younger voters in particular, to understand that we have seen this movie before—too many times. When journalists warn that Hillary Clinton is ���polarizing,” a favorite media cliché, what they mean is that we can expect a steady, increasingly vituperative barrage of insults, gossip, and sensational headlines directed toward her, with or without substance. The Re- publican opposition research specialists are experimenting daily to discover which topics and themes resonate most powerfully against Clinton, one of the best-known and most durably popular political figures in the country. But the partisan operatives, eager and unscrupulous as they are, know very well that Hillary Clinton too has seen all of this before. With the exception of her husband, there is no living public figure in this country who has survived such harsh scrutiny for so long. She has endured far worse attacks than those she is likely to encounter in 2016. When Bill Clinton was still president, she became a primary target of independent counsel Kenneth Starr, his hard- shelled deputy prosecutors and scores of FBI agents, who spent five years and over $50 million attempting to prove, among other things, that the then-First Lady had not testified with perfect accuracy about Introduction viii | Introduction a minor Arkansas real-estate transaction—a deal that had occurred years before her husband’s inauguration. Having created the ballyhooed Whitewater “scandal,” most of the nation’s news organizations, including three or four television networks and the two most important daily newspapers, cheered Starr on, spending millions more in their own zeal to get Hillary. There was no accusation too obscure or dubious to make headlines, in publications that routinely anticipated her imminent criminal in- dictment. Editors of The New York Times, America’s newspaper of record, employed not one but two op-ed columnists, William Sa- fire and Maureen Dowd, whose only seeming purpose in life was to bring her down. Safire warned repeatedly that she would go to prison, promising to “eat crow” if his direst predictions proved wrong. (While the old Nixon hand has since passed away, Dowd still pursues the same old obsession in the same space, as she devolves into self-parody.) When she ran for the United States Senate in 2000, the ugliness only intensified, with Rupert Murdoch’s New York Post publishing false accusations of anti-Semitism against Hillary, articulated by a pair of Arkansas con artists and that ultimate hustler, Dick Morris. What Morris said had as little credibility as any of his statements— he had published a book only two years earlier, declaring that he would never forget Hillary’s kindness to his elderly Jewish parents, with no mention of any alleged anti-Semitic remarks by her. But as with any “Clinton scandal,” credibility and facts mattered little. Eight years later, campaigning for the Democratic presidential nomination, Clinton waded through a barrage of biased, sexist me- dia coverage that left even the most jaded political journalists shak- ing their heads. In the aftermath, Mark Halperin, the peripatetic Time magazine, ABC News and now Bloomberg News pundit—who has showed little sympathy toward her over the years—offered a confes- sion on behalf of his profession. Admitting that the ordinary flaws in campaign coverage, “wild swings, accentuating the negative—are magnified 50 times when it comes to her,” Halperin said, “It’s not a level playing field.” Washington Post columnist Dana Milbank agreed that the political press “will savage her no matter what, pretty much. There’s no question they have their knives out for her.” Many have Introduction | ix drawn their knives again, as she attempts once more in 2016 to make presidential history. The promotion of scandal narratives will remain a favored weapon. As Jeet Heer noted recently in The New Republic, the ghosts of old scandals, mostly imaginary and even paranoid, “are likely to re-emerge in the conservative and even mainstream press.” Certainly there is little doubt that right-wing propaganda op- erations, from Fox to the SuperPACs, will aim to reinforce the old negative memes about Hillary’s candor. But so far, her angry crit- ics on the right have been unable to revive the scandal stories that dogged the White House and dominated media coverage during her Bill Clinton’s presidency. Although critics often complain of “Clin- ton fatigue” and snark continuously about her “baggage,” rarely do they refer directly to the Nineties sensations that became famous as Whitewater, Travelgate, Filegate, and so on. Her opponents don’t usually mention those moldy tales because despite tens of millions of taxpayer dollars spent by congressional committees and special prosecutors investigating them, they were all proved bogus. And despite constant projections that Hillary Clinton would be disgraced or even indicted in the Whitewater probe, she was ultimately cleared of every accusation—and the same was true of Travelgate and Filegate, whose media monikers indicate the level of premature excitement that those stories once encouraged. Unable to refresh such material, Clinton’s determined antago- nists have instead sought to capitalize on Benghazi, where Libyan terrorists killed four Americans, including U.S. Ambassador Chris Stevens. After numerous investigations, however—including an official probe that led to disciplinary action against several State Department officials and many changes in diplomatic security pro- cedures—the notion that Clinton had personally done wrong, or misled investigators, proved baseless. Yet the Republicans haven’t quite given up on Benghazi—even after the Republican-led House Permanent Select Committee on In- telligence definitively dismissed the charges against Clinton last year. The recent furor over her State Department emails arose from efforts by Rep. Trey Gowdy (R-SC) to restore the Benghazi issue as x | Introduction a political weapon. According to the evidence that has emerged so far, however, Clinton appears to have done nothing more egregious with her emails than her predecessors. Until the appointment of Secretary John Kerry to succeed Clinton, no Secretary of State had ever used a government email address exclusively. While she has turned over tens of thousands of emails to the State Department, former Secretary of State Colin Powell admits that he destroyed all the electronic records of his tenure. Nevertheless, the double standard of the political media re- mains intact. Journalists and commentators who never noticed the Bush White House destruction of millions of government emails now bitterly protest Clinton’s alleged electronic misdemeanors. The Republican National Committee—which helped Karl Rove conceal and destroy hundreds of thousands of emails while he served as George W. Bush’s top political advisor—complains loudly about Clinton, “the Secretary of Secrecy.” When Clinton’s pursuers pause from talking about emails and Benghazi, they invariably turn to the Bill, Hillary and Chelsea Clin- ton Foundation, which has raised hundreds of millions of dollars to pursue health, environmental, educational, and civil society projects in America and around the world. A significant portion of that mon- ey was raised abroad from governments and other donors that have endorsed the foundation’s work for very good reason. Supported by that funding, for instance, the foundation’s crusade against HIV/ AIDS, tuberculosis and malaria in poor countries has improved and even saved millions of lives. Much like other charities, from Oxfam to the World Food Pro- gramme, the Clinton Foundation has received money from autocrat- ic governments in the Middle East, including Saudi Arabia. A Saudi billionaire, not connected to the ruling family in Riyadh, donated millions to provide anti-retroviral drugs to AIDS-afflicted Ethiopi- ans, and this too fed the “scandal” narrative. Yet it seems morally dubious to argue that the Clinton Foundation ought to have refused the Saudi funding, letting tens of thousands of women and children die miserably instead. Still Hillary Clinton’s opponents will sow suspicion of her fam- ily’s charitable endeavors, using xenophobia and anti-Arab bigotry Introduction | xi to reinforce such fears. Scarcely a week after Clinton announced her candidacy, her adversaries on the right commenced a series of at- tacks on the foundation, with pre-release publicity for a tendentious book titled Clinton Cash: The Untold Story of How and Why Foreign Gov- ernments and Businesses Helped Make Bill and Hillary Clinton Rich. Underwritten by a “dark money” trust created by the ultra-right Koch brothers and their network, this volume, published by Rupert Murdoch’s HarperCollins, purports to show nefarious connections between the Clintons, their foundation’s supporters, and Hillary Clinton’s tenure as Secretary of State. The flow of millions of dol- lars from the billionaire Clinton adversaries to researchers bent on ruining her with media attacks bears a striking resemblance to the infamous anti-Clinton conspiracy known as the Arkansas Project, financed between 1993 and 1997 by the late Pittsburgh magnate Richard Mellon Scaife. Yet what startled some observers (although not anyone who followed Whitewater) was a deal hatched by author Peter Schweizer with the New York Times and Washington Post to share in his research before publication—affording mainstream legitimacy to a writer whose previous, highly inaccurate works have been debunked by the Post’s own “fact checker” columnist, among many others. On April 23, the Times published a front-page story that in- sinuated but failed to prove a complicated quid pro quo between a major Clinton foundation donor and a decision by the Obama administration to permit a Russian firm to buy American uranium interests. But the story almost immediately began to fall apart, as news outlets picked apart its details to show that Hillary Clinton had nothing to do with the uranium decision, which had largely been controlled by other agencies of government. As NBC News con- ceded the next day—after promoting the Clinton Cash book and the Times story—“upon reflection, that Times article doesn’t hold up that well 24 hours after its publication.” Should those charges utterly disintegrate, more are certain to follow from the same networks and financiers—which is why the story told in The Hunting of Hillary is salient in the current media and political atmosphere. Excerpted from The Hunting of the President: The Ten Year-Campaign to Destroy Bill and Hillary Clinton, this e-book offers xii | Introduction readers and voters a fresh opportunity to review the original effort to ruin the former First Lady. As the 2016 campaign unfolds, nobody should be too surprised to see and hear the same themes, tactics, and canards—perhaps even some of the very same accusations—bubble up into our septic political discourse once more. We believe the story of the Nineties Clinton “scandals” remains relevant today because it documents the techniques and attitudes used to popularize false charges against Hillary Clinton two decades ago—and because the same methods continue to be employed by her partisan adversaries. The long, expensive, and ultimately fruit- less investigations that proceeded under the rubric of Whitewater demonstrated how easily a tantalizing falsehood can gather strength and authority, without any substance whatsoever. It is a lesson that the nation paid dearly to learn when Bill Clin- ton was president—and that we will only forget at even greater cost. | 1 From Trivial Things, A National ‘Scandal’ Rises ONE Investigative reporter Jeff Gerth’s initial Whitewater story ap- peared on the front page of the New York Times on Sunday, March 8,1992—two days before the “Super Tuesday” primaries in six southern states and just weeks before the crucial Democratic con- tests in New York and California. For Sheffield Nelson, the Arkan- sas Republican millionaire and longtime Clinton antagonist who had delivered the story to Gerth, its timing couldn’t have been better. "What mighty contests,” wrote Alexander Pope, “rise from triv- ial things.” The Whitewater property was not vast: it spread across roughly 230 wooded acres, at the confluence of two of the best fishing streams in the Ozarks—Crooked Creek and the White Riv- er. The sums involved were also comparatively small. In buying the property back in 1978, Bill and Hillary Clinton and Jim and Susan McDougal altogether had put a bit more than $200,000 in borrowed money at risk. Had the project succeeded as planned, each couple hoped to realize a profit of roughly $45,000. As it happened, the Clintons ended up losing a bit less than that, the McDougals somewhat more—although Jim McDougal’s habit of commingling funds among his many real estate entities would make a precise accounting impossible. Even the washboard gravel roads bulldozed and graded by the Whitewater Development Corporation remained unpaved 14 years after Bill Clinton was first elected governor. Far from trivial, however, was the depth of McDougal’s resent- ment toward the Clintons. In time, McDougal would portray his former partners as a coolly 2 | Joe Conason and Gene Lyons cynical couple, “takers rather than givers . . . unwilling to jeopardize their political position for the sake of friends.” Hadn’t they turned their backs on him after the catastrophic events of the 1980s— when McDougal had ruined his marriage; suffered a stroke and succumbed to manic-depressive illness; lost a bank he had bought as well as his insolvent thrift, Madison Guaranty Savings and Loan; forfeited his overleveraged, ramshackle real estate empire; and finally found himself facing a four-count federal bank fraud indictment in 1990? Undoubtedly they had. But he had given them plenty of good reasons for shunning him, not the least of which was his inept and self-serving management of Whitewater itself. McDougal’s colorful and increasingly erratic career–as old-time agrarian populist, campaign organizer, failed politician, college pro- fessor, real estate developer, banker, entrepreneur, promoter, sales- man, savings and loan mogul, recovering alcoholic, mental patient, criminal defendant, raconteur, and sometime confidence man—had made him a familiar if rather untrustworthy figure to many Arkan- sas journalists. A largely self-educated country boy from Woodruff County, McDougal had grown up on the geological and historical boundary between the Arkansas cultures of hill country and Delta. He could recite Bible verses and quote lengthy passages from Shake- speare and James Madison from memory. After a well-publicized trial, McDougal had been acquitted of the original fraud charges in Little Rock’s federal district court. At the time, he had blamed the bias of Bush administration Republi- can prosecutors for his plight, but few observers took that charge seriously. Reporters who covered the trial attributed the verdict to a poorly organized prosecution and the spellbinding effect of Mc- Dougal’s own testimony on the jury. Sick, bankrupt, and living on Social Security disability payments in a borrowed mobile home on somebody else’s land near the little town of Arkadelphia, McDougal had then petitioned the governor’s office for a job. Wary Clinton aides made an inquiry to Arkansas se- curities commissioner Beverly Bassett Schaffer, a Clinton appointee who had quietly urged the FBI to investigate him in the first place. No way, Bassett Schaffer told them. In her view, McDougal was no innocent victim of the national savings and loan meltdown, but a The Hunting of Hillary | 3 reckless and devious man who should not be trusted. This rejection maddened the desperate McDougal. Oddly, how- ever, it was a grudge against Clinton’s Democratic rival Jim Guy Tucker, more than his brewing feud with Clinton, that first prompt- ed McDougal to seek out Sheffield Nelson—the wealthy Republican businessman who had lost a bitter gubernatorial race against Clinton two years earlier. It was Nelson who eventually led McDougal to Gerth—who had used Nelson as a background source on earlier Arkansas stories. Like Nelson, Tucker also had lost a bruising political race to Clinton. A handsome, Harvard-educated ex-Marine and former prosecutor, Tucker had given up a seat in Congress to challenge Clinton for the governorship in 1982. He had emerged from the Democratic primary a loser, deeply in debt, and feeling angry. Nelson, Tucker, and Clinton had been mutually antagonistic for years, but McDougal had entered into separate business deal- ings with all three during the real estate boom of the late seventies and early eighties. Only Nelson had profited from his dealings with McDougal, and then only by threatening a lawsuit against Madison Guaranty Savings and Loan—which made it all the more strange that McDougal came to him seeking revenge against Tucker and Clinton. Another irony was that Madison Guaranty’s collapse had been triggered not by Whitewater but, according to bank examiners, by the failure of a major resort development on Campobello Island in New Brunswick, Canada. McDougal’s chief investors in that doomed $3.73 million enterprise happened to be Sheffield Nelson and Nelson’s friend Jerry Jones, the oil-and-gas magnate and Dallas Cowboys owner. It had been the nostalgic McDougal’s conceit that wealthy New England vacationers and retirees would be moved by memories of Franklin Delano Roosevelt’s summer retreat (location of the 1960 film Sunrise at Campobello, starring Ralph Bellamy as FDR) to purchase lots on the cold, foggy island north of Maine. Unlike Whitewater, which placed none of Madison Guaran- ty’s assets at risk, Campobello Properties Ventures was mentioned repeatedly in Madison audits as a costly boondoggle. Eventually the U.S. Treasury Department, which inherited the property after 4 | Joe Conason and Gene Lyons Madison went under, entered negotiations to sell it to the Canadian government for use as a national park. Nelson and Jones had invest- ed a reported $225,000 each to purchase a 12.5 percent share in the enterprise. In 1988, the Federal Home Loan Bank Board (FHLBB), then supervising Madison Guaranty’s assets, had bought their share for $725,000—a profit of $275,000. "I can’t believe it. It’s an extraordinary event. It smells,” said William Seidman, who supervised the savings and loan bailout for the Bush administration, to the Fort Worth Star-Telegram. “It could be legit, but I doubt it.” Jim Guy Tucker’s ties to McDougal were similarly extensive. At one time, the two men had shared ownership of a small bank in tiny Kingston, Arkansas. Although Tucker had grown wealthy investing in cable TV properties after his 1982 election defeat, his real estate dealings with McDougal had ended in mutual recrimination. Not long before McDougal’s 1990 trial, Tucker learned that McDougal had collected loan payments from buyers on a parcel the two had subdivided, but had failed to pay off the bank debt. McDougal nev- ertheless sent worthless deeds to their customers, bearing Tucker’s forged signature. Tucker had had no choice but to make restitution. But when McDougal subsequently asked him to serve as a character witness, Tucker did have a choice and said no. Despite his acquittal, McDou- gal never forgave Tucker. McDougal’s ostensible purpose when he contacted Nelson in February 1992 was to find a Republican lawyer willing to sue Tucker. McDougal wanted Tucker to return $59,000 worth of promisso- ry notes which Tucker had, in fact, bought from him some years earlier, but which McDougal claimed he had stolen. After Tucker was elected lieutenant governor of Arkansas in 1990, putting him in line to succeed Bill Clinton, McDougal may have imagined that the politician would settle rather than risk bad publicity. In the end, no lawsuit was filed. None of this complicated history was reflected in the Times’s Whitewater reporting, which also omitted any mention of Nel- son’s role as its source. Exactly how Whitewater came to bear the The Hunting of Hillary | 5 imprimatur of the newspaper of record always remained murky. Early on, Gerth said he had noticed a reference to the project in Clinton’s state financial disclosure forms, and telephoned the only Arkansan he knew for an explanation. Times editors insisted that Nelson had supplied nothing more than McDougal’s phone number. Nelson, however, always proudly took full credit for putting the Times onto Whitewater. In his posthumously published memoir, Arkansas Mischief, McDougal confirmed that boast. “It was Nelson who passed the information on to Jeff Gerth,” he wrote. “Nelson was gleeful. He wanted me to talk with Gerth, the New York Times reporter who had written a long investigative article about the Ste- phenses’ extensive connections in Arkansas a few years earlier.” On two previous occasions, Sheffield Nelson and Stephens, Inc., a Little Rock-based conglomerate with vast financial interests, had each used the Times as a weapon in their ongoing feud. Gerth’s 1978 story about allegedly predatory natural gas pricing in Fort Smith was credited by Arkansas political observers with influencing enough votes to knock Witt and Jack Stephens’s nephew out of a three-way Senate primary race. Several years later, Stephens, Inc., had retaliated by talking to Times reporter Wendell Rawls, Jr., who wrote a critical examination of Nelson’s Arkla-Arkoma gas deal, which indirectly helped Clinton put an end to his political career. After Nelson made the initial contact, McDougal recalled, Gerth drove down to his home town of Arkadelphia to visit him. McDougal plied the reporter with documents and canceled checks, allegedly showing that the Clintons had taken improper tax deduc- tions and had failed to pay their fair share of Whitewater expenses. According to McDougal, he subsequently came up to Nelson’s Little Rock office and gave him damaging information about Tucker. Nel- son, he claimed, was delighted. Within weeks, Jeff Gerth was sharing piles of documents he believed might implicate Tucker with Little Rock journalists. The Times, he explained, was only interested in Bill Clinton. Gerth’s original article won praise from the American Journalism Review for containing “80 to 90 percent” of what the press ultimately learned about Whitewater. Even some Clinton loyalists acknowl- edged that the story examined legitimate issues concerning the 6 | Joe Conason and Gene Lyons Clintons’ finances and Hillary Clinton’s law practice. Unfortunately, its mistakes began with the headline: “CLINTONS JOINED S & L OPERATOR IN AN OZARK REAL ESTATE VENTURE.” Actually, when the Whitewater partnership was formed in 1978, McDougal hadn’t been involved in the banking or thrift businesses at all. He was a political science teacher at Ouachita Baptist Univer- sity, who had done well investing in real estate. McDougal didn’t acquire a controlling share in the small thrift institution he renamed Madison Guaranty until five years later—by which time the White- water project was virtually defunct. Judging by subsequent stern editorials in the New York Times, the rest of the story could be summarized more or less as follows: When he was governor, Clinton and his wife entered into a sweetheart deal with a crooked financier at no risk to themselves. When their benefactor got into trouble, Clinton dumped the sitting Arkansas securities commissioner and appointed a political ally named Bever- ly Bassett Schaffer. He and Hillary then pressured Bassett Schaffer to grant special favors to Madison, until vigilant federal regulators cracked down and thwarted their scheme. When exposed by Gerth, Bassett Schaffer claimed a convenient memory loss, denying com- plicity in events she had supposedly forgotten. "In interviews,” Gerth had written, “Mrs. Schaffer . . . said she did not remember the Federal examination of Madison, but added that in her view, the findings were not ‘definitive proof of insolven- cy’... ‘I never gave anybody special treatment,’ she said.” The problem, as Bassett Schaffer had pointed out in 20 pages of memoranda she had provided to Gerth via fax, was that this version of events was mostly false. First, the Clintons and McDougals were jointly and severally responsible for the Whitewater loan. Moreover, federal regulators did not determine that Madison Guaranty was insolvent between 1984 and 1986, the years Gerth’s story covered. The Federal Home Loan Bank Board had formally accepted Madison’s debt-restruc- turing plan in a letter dated September 11,1984—a full six months before Bassett Schaffer’s appointment. Nor was her appointment connected to Madison’s troubles. She had filled a vacancy created The Hunting of Hillary | 7 when her Republican-appointed predecessor—who later described Gerth’s Whitewater story as “unmitigated horseshit”—resigned to enter private legal practice. More important, Arkansas had no authority to close state-reg- ulated S&Ls without the concurrence of the federal agencies that held the real power. “It may be important for you to know,” Bassett Schaffer had written to Gerth, “that state law grants the savings and loan supervisor no emergency acquisition authority similar to that of the FHLBB and FSLIC (the Federal Savings and Loan Insurance Corporation).” Subsequent Senate hearings would establish that not one of the 746 institutions that failed during the S&L crisis of the ‘80s was shut down by state officials anywhere in the country. But Bassett Schaffer had been an active participant in a July 1986 decision to remove Jim and Susan McDougal from control of Madison Guaranty S&L, after auditors discovered his insider trading and other abuses. She had also directed the Times reporter’s attention to her certi- fied letter, dated December 10, 1987, all but begging federal regula- tors to shut down Madison and two much larger Arkansas S&Ls. She had gotten no answer until the feds finally closed Madison’s doors in February 1989, roughly a month after President George H.W. Bush’s inauguration. According to Walter Faulk, then director of supervi- sion for the FHLBB in Dallas, “I never saw [Bassett Schaffer] take any action that was out of the ordinary.... To my knowledge, there is nothing that she or the governor of Arkansas did or could have done that would have delayed the action on this institution.” When the Times story appeared, Bassett Schaffer briefly con- sidered filing a libel suit. “I provided you with a detailed account in writing of the facts,” she wrote Gerth bitterly. “This information was ignored and, instead, you based your story on the word of a mentally ill man [McDougal] I have never met and documents which you admitted to me on the telephone on February 26, 1992, were incomplete.” He never wrote back to her. "I subsequently had conversations with her in which I tried to explain the situation. I sought to come down and meet her,” Gerth said later. “I had hoped to explain what happened with the editing 8 | Joe Conason and Gene Lyons of the first piece. She never would agree to see me.” Because his errors and inferences had appeared on the front page of the New York Times, they would be repeated as gospel by other reporters for years to come. Jim McDougal was likewise stunned by Gerth’s initial foray into Whitewater. The Times article suggested that McDougal had crim- inally misused Madison deposits to subsidize the Ozark develop- ment. Having set out to hurt Tucker and Clinton, McDougal had inflicted the worst injuries on himself. Sam Heuer, the Little Rock attorney who had successfully defended McDougal during his 1990 bank fraud trial, issued a statement: “I am appalled and affronted by the allegations and reckless disregard of the facts by the New York Times and its reporter Jeff Gerth.” The Clinton campaign dispatched attorney Jim Blair, an old friend of McDougal and the Clintons, to remind their former partner that further unguarded comments to reporters could have consequences more harmful to him than to anybody else. When an Associated Press reporter contacted McDougal a couple of days later, he sounded chastened. “I’ve never done anything illegal,” he said, “and as far as I know Bill Clinton has never done anything illegal or unethical.” He would later claim that Blair had threatened him with a lawsuit. But McDougal’s retraction meant little. Weeks earlier, according to McDougal, Sheffield Nelson had secretly taped him making sev- eral rash allegations, and Nelson proceeded to copy and distribute the tape to every journalist who would listen. To Nelson, McDougal had asserted that the Clintons never lost money on Whitewater. “I could sink [that] quicker than they could lie about it if I could get in a position so I wouldn’t have my head beaten off,” McDougal had said. Meanwhile, confronted by Clinton campaign aide and longtime Hillary friend Susan Thomases about the shortcomings in his work, Jeff Gerth was initially somewhat apologetic, she recalled. He had planned a more extensive, three-part series on the Clintons’ finances, she said Gerth had told her, only to have his piece chopped down to 1500 words by his editors. Thomases also remembered Gerth mentioning that his Washington bureau chief, a southerner named The Hunting of Hillary | 9 Howell Raines, disliked Clinton and was largely responsible for the story’s tone. Later Gerth denied blaming Raines, although he said he “was upset” by the way his original Whitewater copy was edited and did request changes after the paper’s first edition appeared (including the addition of a quote from Bassett Schaffer denying she had favored McDougal). There had been no plan for a “series,” he added, and he thought it was “highly unlikely” that the Whitewater story actually had been edited by Raines. Campaigning in the New York Democratic presidential primary, former California governor Jerry Brown frequently denounced the “sleazy” appearance of Hillary Clinton’s law practice. In response, the Clinton campaign commissioned an accounting of Whitewater, overseen by a Denver attorney and Clinton friend named James Lyons (no relation to the author). Hillary also asked Webster Hub- bell and Vincent Foster, her two closest associates at the Rose Law Firm, to help explain her work for Madison. A more ill-starred pair of defenders could hardly be imagined, although she had no way of knowing that. In the process of gathering information, Foster obtained a computer printout from the Rose Law Firm of Hillary’s Madison Guaranty billing records. The Lyons report, released by the campaign in late March, con- cluded that the Clintons had lost about $65,000 on the project. Due to insufficient information given them by McDougal, the Clintons had improperly deducted a handful of interest payments from their income taxes, amounting to a tax savings of less than $2,000. Al- though the five-year limit on IRS action had long passed, the couple made a point of paying the back taxes. But at least for the time being, the Clinton campaign’s swift response had put the Whitewater issue to rest. How much scandal could there be in a gravel-road real-estate development in which the Clintons had ultimately lost money? One aspect of the story that would never receive much attention was Jim McDougal’s psychiatric history. In his initial 1992 article, Jeff Gerth noted that McDougal suffered from manic-depressive disorder, but described him as “stable, careful and calm.” Aside from that reassuring reference, McDougal’s affliction and its effect on his turbulent business and personal life were rarely mentioned. 10 | Joe Conason and Gene Lyons McDougal’s illness had much to do with his problems. Among the symptoms psychiatric manuals list for a manic episode are the following: “inflated self-esteem (grandiosity, which may be delusion- al)” and “excessive involvement in activities that have a high poten- tial for painful consequences which is not recognized, e.g. buying sprees . . . foolish business investments.” It’s common for manic individuals to succumb to “grandiose delusions involving a special relationship to God, or some well-known figure from the political, religious or entertainment world.” McDougal’s attorney had gone so far as to file, and later with- draw, an insanity plea during his 1990 bank fraud trial. Given his financial situation during the 1980s—his heavily mortgaged real estate investments, his ownership of a small, unprofitable bank and floundering S&L—and the fact that McDougal suffered from man- ic-depressive illness, serious trouble was inevitable. | 11 Swindling (And Smearing) The Clintons TWO While Jeff Gerth’s Sunday article may have left little impression on most Times readers, it was thrilling to L. Jean Lewis in Tulsa, Oklahoma. She was not, as it turned out, alone in her excitement. Lewis was an investigator for the Resolution Trust Corporation (RTC), the temporary federal agency created during the Bush ad- ministration to bail out savings and loan depositors and liquidate the assets of institutions seized by the government. A 38 year-old former executive secretary in a failed Dallas thrift, Lewis was neither a lawyer nor a CPA. When she joined the RTC, she had no previous law enforcement experience. Having grown up in a military family in Texas, Lewis proudly identified herself as a conservative Republican. (In a contemporaneous letter to a friend, she described Bill Clinton as a “lying bastard.") She worked out of the RTC’s Tulsa office, until she was later transferred to Kansas City, and her job was mostly routine: to sift through the records of failed Arkansas thrifts for evidence of fishy transactions. Consulting closely with the FBI’s Little Rock office, Lewis had compiled a prioritized list of Arkansas institutions to be looked into. At the top, as of December 1991, she had placed the two largest failed thrifts in the state, Saver’s Savings and First Feder- al, both headquartered in Little Rock. Saver’s had collapsed at a cost of $650 million, First Federal at a cost of $950 million—both amid strong FBI suspicions of criminal fraud. First Federal alone had squandered roughly 20 times the amount lost by Jim McDougal’s Madison Guaranty, which stood, sensibly enough, near the bottom of Lewis’s list. 12 | Joe Conason and Gene Lyons All that changed, however, with the publication of Gerth’s story three months later. The following morning, on March 9, the RTC’s Tulsa field of- fice got two calls from senior RTC officials in Washington inquiring about the accuracy of Gerth’s allegations. The acting head of in- vestigations looked over the Madison Guaranty file and responded with a memo stating that “the Whitewater Development loan was not specifically classified by Federal Examiners, and . . . [the record] does not show any [bank] losses related to the Clintons or White- water development.... Bill and Hillary Clinton are not named in any of the documents contained in our criminal referral files.” In fact, neither Whitewater nor the Clintons had ever borrowed from Mad- ison Guaranty. Nevertheless, Lewis and her supervisor, Richard Iorio, moved Madison Guaranty to the top of their investigative list. Lewis quickly headed to Little Rock to search out more documents stored in a downtown warehouse. Did Hillary Rodham Clinton know about or suspect problems with Whitewater that she didn’t want the press to discover? Certainly what she had learned when she took over the tangled affairs of the Whitewater Development Corporation in 1988—after McDougal had left the hospital and moved to California— had given cause for concern. Piecing together the company’s jumbled records had been almost impossible, and many documents were missing. Property taxes, in some instances, hadn’t been paid for years. The owner of a lot financed personally by Hillary had gone into bankruptcy. (She had never been notified, and McDougal had made no payments on the note.) The corporation’s state franchise fees hadn’t been paid for several years, a potential embarrassment had Bill Clinton’s political rivals ever uncovered it. Given the depressed real estate market during the mid-‘80s, Whitewater probably would have lost money anyway. The site, though picturesque, had been badly chosen. The nearest towns with gas stations, grocery stores, a hospital, or a golf course were more than a 45-minute drive away over narrow, steep, curvy roads. And Marion County, where Whitewater was situated, is also dry—no al- coholic beverages. The Hunting of Hillary | 13 Years later, when an objective accounting of the Whitewater project became available, it was clear that as its managing partner, McDougal turned a poor investment into something much worse. He had treated the Clintons’ investment as if it belonged to him personally, abused their trust, sold the company’s assets at a steep discount to the realtor who was supposed to be its agent, deceived his partners about its condition over a period of several years, and arguably committed several crimes in the process. In 1985, without telling the Clintons, McDougal had liquidated Whitewater’s real estate assets for pennies on the dollar. He sold all of Whitewater’s remaining lots (24 of the original 44) to one Chris Wade, the realtor charged with marketing and selling the de- velopment. The asking price for 23 of those 24 lots, according to a “Whitewater Estates” inventory list dated November 1984, had been $191,550. In return for the land, however, Wade put down no cash. He agreed to assume $35,000 of the $96,000 still owed by the Clin- tons and McDougals on the original 1978 loan that had financed the project. (Wade was so slow to pay his share that the bank was still charging the Whitewater Development Company interest on the money until 1992.) As payment McDougal also accepted from Wade a 1979 Piper Seminole airplane, worth $35,000, which he promptly pressed into service as Madison Guaranty’s official corporate air- craft. Eventually he sold the airplane and kept the money himself. Whitewater’s real estate assets were gone, but the Clintons didn’t know it. They wouldn’t learn many of these details until years after the fact. Outwardly flush, in May 1985, Madison Guaranty put the Rose Law Firm on a $2,000-a-month retainer, and McDougal hosted a political fund-raiser for the governor in the lobby of the thrift’s newly refurbished downtown Little Rock headquarters. It wasn’t until Hillary took over the company’s records that she and her accountants learned that the company had been all but for- mally defunct for over four years. Although more than $134,000 had been deposited in the Whitewater account between 1984 and 1986 from other McDougal-owned companies, roughly the same amount had been paid out, much of it to individuals and companies having nothing to do with Whitewater. 14 | Joe Conason and Gene Lyons In November 1986, McDougal had written the Clintons of- fering a deal. The letter arrived several months after the Rose Law Firm had dropped Madison Guaranty as a client, and regulators had forced his removal from the S&L. McDougal had also recently suf- fered a stroke, and he was hospitalized for manic-depressive illness. To spare them any public embarrassment, he proposed that they simply hand over their share of Whitewater. In essence, he was of- fering to buy their share of the corporation for half the amount of the $90,000 losses, which he planned to claim on his federal taxes. The problem was that the company still owed almost $90,000 to Citizens Bank, which refused to release the Clintons from liability. In effect, they were being asked to give up their share of what they mis- takenly believed was an asset in return for assuming a $90,000 debt. Not surprisingly, Hillary Clinton balked and demanded to see Whitewater’s books, infuriating McDougal. In December 1986, he wrote to the Clintons again. Despite current cash-flow problems, he claimed, Citizens Bank had agreed to reduced payments, and the Clintons didn’t owe him any money. But there was no such agree- ment with the bank. By 1988, after both McDougals had left Arkan- sas for California, Hillary was forced to take over the management of Whitewater—finding an empty shell, its assets stripped, its debts and taxes unpaid, its records disordered and incomplete. The Madison ledgers Jean Lewis pulled from the dusty Little Rock warehouse were as chaotic as the Whitewater documents that Hillary had obtained four years earlier. Worst of all were the records of the checking accounts of McDougal’s dozen real estate compa- nies. What Lewis uncovered would have confirmed Hillary’s worst fears. Madison Guaranty had drifted into deep financial distress for the same basic reason that hundreds of other thrifts faltered during the 1980s. Forced by the Federal Reserve to pay ruinously high in- terest rates on deposits, their income was restricted by the long-term low-interest mortgages they held. Hemorrhaging money, they were encouraged by Congress and the Reagan administration to make up the difference by speculating in real estate. Those regulatory “re- forms” had lured McDougal into the thrift business, but no sooner had he taken over Madison Guaranty than the same ruinously high The Hunting of Hillary | 15 interest rates sent the real estate market into a tailspin. Faced with cash-flow problems, Lewis found, McDougal had begun a frantic fiscal juggling act, commingling funds and moving money back and forth among the corporations and partnerships he controlled. The Clintons and Jim Guy Tucker were by no means the only business partners whose trust he had abused. Following Gerth’s lead, Lewis focused her attention on the last six months of 1985, when Beverly Bassett Schaffer had supposedly done favors for Madison Guaranty’s owner. Finding evidence of McDougal’s fiscal shenanigans everywhere she looked, Lewis leaped to a conclusion well beyond the New York Times reporter’s imagining: Everyone in Arkansas who had ever done business with Madison Guaranty, including the Clintons, was part of a huge conspiracy, she seemed to surmise in her criminal referrals. Every transaction that appeared to benefit McDougal must also have benefited his partners, according to her theory. By August 1992, the Little Rock FBI agents assigned to inves- tigate financial crime were growing impatient with Lewis and the RTC. Her agency, having seized the records of bankrupt institutions across the country, controlled all the paperwork in thrift investiga- tions. Without referrals from the RTC, law enforcement officials could not move forward on potential fraud cases. Lewis’s months of work on Madison Guaranty struck the agents as a waste of time and money, and her motives seemed suspiciously political. On August 26, FBI special agent Steven Irons spoke with Lewis by phone. He took notes of the conversation. According to his notes, Lewis informed Irons that she had been given a deadline of August 31 to file a referral on Madison Guar- anty, and that there were “big names involved.” Lewis claimed that she “gave up a job opportunity in D.C. just to do referral. She or it could alter history—very dramatic.” Irons would later testify he had no doubt that Lewis’s motive was to disrupt the 1992 presidential election in favor of George H.W. Bush. Later that day, his Little Rock supervisor, Special Agent in Charge Don Pettus, sent a telex to FBI Headquarters in Washington, expressing his professional frustration. Pettus sought permission to 16 | Joe Conason and Gene Lyons press ahead on the First Federal and Saver’s Savings cases, without the RTC’s help. On August 31, Lewis delivered as promised. She filed a criminal referral with the FBI and the U.S. attorney in Little Rock, naming not only James and Susan McDougal as felony suspects, but also each and every contributor to the 1985 Clinton fund-raising event held at Madison Guaranty. As “possible witnesses” she listed both Bill and Hillary Clinton, Arkansas lieutenant governor Jim Guy Tucker, and retired U. S. Senator J. William Fulbright, another Arkansas Demo- crat who had invested with his former aide McDougal. She named none of the Republicans who had done business with McDougal or Madison. Normally, criminal referrals from the RTC took months to be processed. But within days, Lewis started pestering FBI agent Irons and the U.S. Attorney’s staff in Little Rock with demands for im- mediate action. After Irons stopped returning her calls, she left a taunting message with the office receptionist. "Have I turned into a local pariah,” Lewis demanded, “just be- cause I wrote one referral with high profile names, or do you plan on calling me back before Christmas, Steven?????” (She specifically dictated the five question marks.) Irons returned her call only to tell her to back off. Word of Lewis’s efforts filtered back to the Clinton campaign sometime between mid-September and early October, when long- time aide Betsey Wright got a phone call from a supporter in Cali- fornia. On a recent business trip to Kansas City, the man said, he had attended a cocktail party where a female RTC staffer boasted that she had “just sent a criminal referral up to the prosecutor in Little Rock... which would implicate the Clintons.” (Three months earlier, the RTC had closed its Tulsa office and transferred Jean Lewis to Kansas City.) And although Wright had no way of knowing it, there were signs around the same time that the White House, the Justice Department, and the Bush campaign were taking a direct interest in Lewis’s machinations. William Barr, then serving as Bush’s attorney general, later testified that White House cabinet secretary Edith Holiday asked him about the Lewis referral during a flight on Air Force One on The Hunting of Hillary | 17 September 17, 1992. At the time, Holiday was “chief liaison” be- tween the White House and the 1992 Bush- Quayle campaign. Previously she had served as operations director of the 1988 Bush- Quayle campaign, and then as general counsel to the Treasury De- partment. That week, Barr asked his aides to contact the FBI, which informed them it had no record of such a case. He reported back to Holiday, who seemed surprised. Her demeanor made him wonder whether “she had better information” than he did, he recalled. (Un- der oath, Holiday later said she did not remember any conversations with Barr about Madison Guaranty and the Clintons.) On September 18, Lewis turned up in Irons’s Little Rock office after a meeting he did not attend. The agent told her that due to its sensitivity, no action would be taken on her referral until after the November election. She warned him that RTC officials in Wash- ington expected action. Much to Lewis’s eventual chagrin, Irons once again made contemporaneous notes of their conversation. At the same time, Lewis made repeated calls to career prosecutors on the staff of U.S. Attorney Charles Banks in Little Rock. They too questioned both her motives and her referral’s substance. Assistant U.S. Attorney Fletcher Jackson saw no point in pursuing McDougal again. “The prior acquittal,” he told Banks, “would be used against you to make this look like a vindictive prosecution.” What Lewis described as illegal “check-kiting” at Madison, Jack- son regarded as a slightly different kind of scam, though he didn’t quarrel with her terminology. Check-kiting usually involves writing bad checks among several banks to create illusory balances. Instead, McDougal was shifting money back and forth among several ac- counts within his own bank. “From appearances,” he would later testify, “it’s just McDougal taking care of McDougal and McDougal’s corporations. What it ap- peared to be was that most of the manipulation Mr. McDougal was doing was to make the debt carry. In other words, he was doing all of these fraudulent transactions, in a sense, in order to make his interest payments and principal payments on debts that he had.” If McDou- gal’s actions were in fact crimes—and Jackson had his doubts—the Clintons and his other business partners appeared to be his victims, not his accomplices. 18 | U.S. Attorney Blocks Partisan Political Probe THREE Around the end of September or the beginning of October, the Bush White House also displayed a discreet interest in the Mad- ison matter. Sometime during that period, White House counsel C. Boyden Gray called Albert Casey, the chief executive of the RTC in Washington. Casey later testified that Gray asked him what he knew about an RTC matter involving the Clintons. He knew noth- ing, Casey said he replied, but he promised to look into it and call Gray back. Casey then called RTC vice president William Roelle, who confirmed the existence of Lewis’s referral, and showed him a copy. Roelle later testified that he told Casey that he should not provide any information to the White House. Before Casey could reach Boyden Gray, however, the White House counsel phoned him again. “Al, forget my request,” Casey remembered Gray saying. “I don’t want you to tell me a thing.” Gray himself would later deny any memory of those conversations with Casey. Any such call, he said, would have come from the Bush cam- paign, not the White House. Campaign officials echoed Gray’s denial, saying they had no idea that Madison was being investigated in 1992, and that the campaign had a strict rule that “nobody... was to talk to anybody in the government about Clinton.” Only a “third-level, junior person” would have done something like that, they insisted. Attorney General William Barr was considerably less cautious. After his conversation with Edith Holiday, Barr insisted that his aides check once again whether Madison was the subject of a Justice Department probe. When a second inquiry to the Executive Office of U.S. Attorneys brought confirmation of the RTC referral, Barr became angry because he felt that Chuck Banks had “deliberately The Hunting of Hillary | 19 withheld information about the referral from me.” On October 7, the Little Rock office of the FBI responded with a lengthy telex to its superiors in Washington, expressing extreme skepticism about the validity of Lewis’s referral. After summarizing Jim McDougal’s 1990 trial and shaky psychological state, it added that despite “the referral’s stated supposition that the activity was for the benefit of the McDougals, the further supposition that other people benefitted does not appear to be factually supported by the details that follow. “It is the opinion of Little Rock FBI and the United States Attorney... that there is indeed insufficient evidence to suggest the Clintons had knowledge of the check-kiting activity conducted by McDougal... [who] was in charge of [Whitewater] records, just as he was with the records of other companies involved in the check-kiting, and does not suggest the Clintons had access to check- ing account statements that would have reflected the questionable transactions.... It was also the opinion of [Banks that] the alleged involvement of the Clintons in wrongdoing was implausible, and he was not inclined to authorize an investigation or render a positive prosecutive opinion.” On October 8,1992, Barr sent one of his assistants to a top-level meeting attended by Robert Mueller, then head of the Justice De- partment’s Criminal Division, FBI assistant director Larry Potts, and several senior FBI officials. At that point, the Madison Guaranty referral was definitely a matter of active interest at main Justice. The next day, FBI Headquarters sent a telex to its Little Rock field office, ordering agents there to review Jean Lewis’s criminal referral and report in writing by October 16—less than three weeks before the 1992 presidential election. As far as Banks was concerned, that order sealed his decision. A native Arkansan, he had been a Republican congressional nominee in 1982 and had also served as general counsel of the state par- ty. As such, he had once brought a lawsuit against Bill Clinton for what he considered the politically motivated firing of a Republican labor commissioner. Appointed by Ronald Reagan in 1988, Banks had been nominated to a federal judgeship in August 1992 by Pres- ident Bush. His nomination was still pending in the U.S. Senate. If 20 | Joe Conason and Gene Lyons anybody in Arkansas had a personal interest in seeing Bush reelected in 1992, it was Chuck Banks. But Banks also had his limits. He would not be used political- ly. He had come to distrust Jean Lewis’s motives, and believed that charging Jim McDougal again would be a cruel and unnecessary waste of his office’s resources. Further, based on the documents Lewis had produced, he saw no persuasive evidence against the Clin- tons or Jim Guy Tucker. More than once, Banks discussed the case with Don Pettus, the special agent in charge of the FBI’s Little Rock office, who shared his misgivings. As the October 16 deadline approached, Banks decided to put his objections in writing. Dictating a letter to Pettus, he began by repeating all the reasons he had turned down the RTC’s criminal referral in the first place. Then he staked out an uncompromising position: “I am now advised that you have been ordered to do an immediate review to determine if an investigation is warranted. As part of same, you are required to send a prospective proposal for such an investigation by Friday, October 16, 1992. Such an order does not apply to this office. “However, I do believe it might be helpful to reiterate what I have told you previously. Neither I personally nor this office will par- ticipate in any phase of such an investigation . . . prior to November 3, 1992. You may communicate this orally to officials of the FBI or you should feel free to make this part of your report. “While I do not intend to denigrate the work of RTC,” Banks added, “I must opine that after such a lapse of time the insistence of urgency in this case appears to suggest an intentional or uninten- tional attempt to intervene into the political process of the upcom- ing presidential election. You and I know in investigations of this type, the first steps, such as issuance of grand jury subpoenas for records, will lead to media and public inquiries [about] matters that are subject to absolute privacy. Even media questions about such an investigation in today’s modern political climate all too often publicly purport to ‘legitimize what can’t be proven.’ “For me personally to participate in an investigation that I know will or could easily lead to the above scenario . . . amounts to The Hunting of Hillary | 21 prosecutorial misconduct and violates the most basic fundamental rule of Department of Justice policy. I cannot be a party to such actions.” Banks closed by promising to direct “any press inquiry from any source whatsoever” to the Attorney General or the head of the RTC. Such a statement from Banks would, of course, have been devastating to the Bush campaign. Whoever won the November election, Chuck Banks’ government career was probably over. The FBI’s Little Rock office dispatched its report to Washing- ton on October 16 as ordered, stating that there was “absolutely no factual basis to suggest criminal activity on the part of any of the individuals listed as witnesses in the referral.” The telex went on to complain again about the RTC’s failure to provide criminal referrals on the two much larger thrifts, Savers’ Savings and First Federal Sav- ings, whose combined losses of $1.5 billion offered “much greater prosecutive potential” than Madison Guaranty. Aside from the daunting complexities of Whitewater, Boyden Gray’s sudden loss of interest may have reflected worries that were closer to home for the Bush family. Certainly neither the White House nor the Bush campaign would have wanted to risk drawing attention to the business dealings of the president’s sons—in par- ticular, Neil Bush’s role as director of a corrupt Colorado savings and loan whose bankruptcy cost taxpayers a billion dollars. That was a story several reporters were pursuing around the time of Gray’s phone calls to Albert Casey. It was more prudent to forget about al- leged financial misdeeds and focus instead on Clinton’s draft evasion. So there would be no “October sur</p>
