‘The Clinton Wars’: An Exchange

To the Editors:

Joseph Lelyveld’s review of The Clinton Wars [NYR, May 29] was a missed opportunity for him to clarify and add to the historical record. He was a direct participant in the events I chronicle in it, and though he notes his participation he elides it with a reiteration of the old New York Times line on the Clintons, which he fails to acknowledge I criticize.

In his letter in the last issue of The New York Review of Books [June 12], responding to a column in Salon by Joe Conason, Lelyveld corrects certain errors in his review involving his claims that I omitted material that was, in fact, in The Clinton Wars. Nonetheless, he avoids dealing with the question of his responsibility for the Times’s Whitewater coverage.

At the heart of his review is a defense of his handling for more than a decade, as managing editor and executive editor of The New York Times, of what is called the Whitewater story, about a failed real estate investment by Bill and Hillary Clinton in 1978. It was this initially minor issue, reported in a page-one article of the Times on March 8, 1992, that metastasized into the impeachment trial of President Clinton.

In his review Lelyveld calls Whitewater a “sweetheart deal” for the Clintons and depicts the facts as set forth in that first Whitewater article by reporter Jeff Gerth as incontrovertible: “The story said that the Clintons had a half-interest in a real estate development company in the Ozarks and that the other half was owned by an old friend who was at the helm of the biggest savings and loan association in the state when it became insolvent.” The article, inaccurately headlined “Clintons Joined S&L Operator in an Ozark Real-Estate Venture,” began with a lead sentence that compounded the error: “Bill Clinton and his wife were business partners with the owner of a failing savings and loan association that was subject to state regulation early in his tenure as Governor of Arkansas, records show.” But in fact, when the Clintons made their investment, Jim McDougal, their partner, had not yet established the Madison Guaranty S&L.

Lelyveld homes in on conflict-of-interest as driving the newspaper’s interest in the story: “It [the article] said nothing about laws having been broken but asked ‘whether a governor should be involved in a business deal with the owner of a business regulated by the state.'” The theme was that a state regulator appointed by Governor Clinton was granting preferential treatment to a bank owned by his business partner. Gerth wrote that the Arkansas securities commissioner, Beverly Basset Schaffer, approved “two novel proposals to help the savings and loan,” and that “Mrs. Schaffer, now a Fayetteville lawyer, said she did not remember the Federal examination of Madison but added that in her view, the findings were not ‘definitive proof of insolvency.'”

But in fact, Schaffer had not approved “two novel proposals” to keep Madison afloat. She had argued that the S&L would have to meet stringent federal and state requirements, but the bank never attempted to do so and the proposals died. Moreover, she had given Gerth a twenty-page memo detailing her efforts to close the bank, which included calling attention to its problems to the Federal Home Loan Bank Board and the Federal Saving and Loan Insurance Corporation; among other actions, she wrote a strenuous letter urging closure on December 10, 1987. (It took these agencies, headed by appointees of the G.H.W. Bush administration, fifteen months to act on her recommendation.) But, as I write in my book, though she gave these details to Gerth before his article was published, hers was “an account Gerth ignored.” On January 25, 1996, she testified before the Senate Whitewater Committee that she had not approved the Madison proposals and that she had given Gerth a memo saying so. Was Lelyveld ever made aware of Schaffer’s memo, which set forth facts undermining the chief premise of Gerth’s article?

Other fundamental errors or misjudgments marred the initial New York Times coverage. For example, Gerth wrote, “Available records covering the most active period of the real estate corporation, called Whitewater Development, appear to show that Mr. McDougal heavily subsidized it, insuring that the Clintons were under little financial risk in what turned out to be an unsuccessful enterprise.” In fact, this qualified supposition (“available” records that “appeared to show”) was untrue: the Clintons had joint liability on all bank loans, making them completely responsible.

Lelyveld writes now that Gerth’s article “had multiple sources.” But a single source had given Gerth the tip on the story and arranged for him to meet Jim McDougal, who was at the time suffering from manic depression, drug addiction, alcoholism, and bankruptcy. That source was Sheffield Nelson, an embittered partisan Republican rival of Bill Clinton, who had run against him for governor in 1990. Nelson’s pertinence to Madison Guaranty was that he’d contributed to breaking it. As I write in my book: “McDougal and Nelson had been business partners in a deal to buy Campobello Island, FDR’s famous summer place, and turn it into resort lots. More than any other scheme, that failed one had helped pull the Madison bank under. But the Campobello deal went unmentioned in Gerth’s account.”

At first, Gerth’s Times article had little impact. As I write, “McDougal retracted his charges, saying Clinton had done nothing illegal or unethical. A forensic accountant scratched through the confused records and issued a report showing no wrongdoing by the Clintons, while they lost about $65,000.” However, a Republican activist, L. Jean Lewis, who worked as an investigator at the Resolution Trust Corporation, the federal agency dealing with failed savings and loans associations, read the article and became the prime mover in turning its allegations into a criminal referral. Then, many months later, during the presidential campaign in October 1992, Bush White House legal counsel C. Boyden Gray asked the chief executive of the RTC to look into this referral. The US Attorney in Arkansas, Charles Banks (a Republican appointee), looked into it, and on October 7, 1992, the following telex, which I cite in The Clinton Wars, was sent to Washington: “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…. It was also the opinion of [Banks that] the alleged involvement of the Clintons in wrong-doing was implausible….” When Attorney General William Barr nonetheless tried to revive Lewis’s referral, Banks rebuked his boss: “I must opine that after such a lapse of time the insistence of urgency in this case appears to suggest an intentional or unintentional attempt to intervene into the political process of the upcoming presidential election.” Then, prophetically, he added: “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.'” He suggested that participating in such an investigation “amounts to prosecutorial misconduct and violates the most basic fundamental rule of Department of Justice policy.” In another telex the Little Rock FBI office added 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”—that is, the Clintons. Although the Los Angeles Times reported these memos and telexes on August 9, 1995, the Nexis database reveals no mention in The New York Times. Was Lelyveld ever made aware of these documents at the time?

Lelyveld argues that the Clintons responded to the revival of Whitewater—achieved by media speculation on its possible connection to White House deputy legal counsel Vincent Foster’s suicide in July 1995—by “throwing up a smokescreen of fibs and disclosing as little as possible.” As I write, “The files were scattered and incomplete—nobody really knew how much—and the Clintons were unfamiliar with them.” But they certainly handed over their records to the federal authorities investigating the matter as soon as they were located. Lelyveld does not fully distinguish between disclosure to the proper authorities and disclosure to the press, which is hardly the same thing. They did not release all the documents to the already sensationalizing media for precisely the reasons raised by Charles Banks in his 1992 letter. They believed they should follow the legal model according to which responsible agencies would investigate and issue reports. As I write, the Clintons’ lawyers “gave stern advice to their clients that they should give the files only to legal authorities; otherwise they would find themselves being tried in the press….”

On December 13, 1995, the Resolution Trust Corporation issued its comprehensive report on Whitewater, having studied more than 200,000 documents and interviewed forty-five witnesses. RTC had obtained “essentially all of the documents regarding Whitewater” relevant to the Clintons, it said, and concluded: “On this record, there is no basis to charge the Clintons with any kind of primary liability for fraud or intentional misconduct. This investigation has revealed no evidence to support any such claims. Nor would the record support any claim of secondary or derivative liability for the possible misdeeds of others.” Although The Wall Street Journal reported on this conclusion, The New York Times did not—except that two weeks later, a few lines buried in a “News of the Week in Review” summary mentioned that the RTC had decided not to sue the Clintons, omitting any mention of its conclusion that the Clintons were not responsible for McDougal’s illegal actions and that, in regards to them, “no further resources need be expended on the Whitewater part of the investigation.” Was Lelyveld ever aware of this Whitewater report or ever read its conclusions? Did he know of its issuance at the time?

On May 15, 1996, when Jim and Susan McDougal were on trial in Arkansas, Ray Jahn, the prosecutor for the Office of the Independent Counsel, repeatedly stressed, in his closing argument (I quote it in my book), that President Clinton had absolutely nothing to do with McDougal’s misdoings, even though the defense had tried to claim that he did. McDougal was found guilty on nineteen of twenty-one counts, his wife on four; and his key supporting witness, David Hale—the only “witness” against Clinton in the entire Whitewater saga, a corrupt former municipal court judge whom I discuss at length—was discredited. A juror was quoted afterward as saying that Hale was “an unmitigated liar…. We all felt that way.” But not one line reporting on Jahn’s extraordinary summation, which vindicated the President so conclusively, appeared in The New York Times. Was Lelyveld ever aware of it? Did he know that Hale’s credibility had been shattered?

In The Clinton Wars, I contribute the new account of Samuel Dash, who was Kenneth Starr’s counselor in the Office of the Independent Counsel, and he, too, confirms that there was nothing to the whole series of pseudo-scandals. Dash told me, as I report in the book, that “Starr ‘could have rounded up’ his initial investigation within two years of his appointment, ‘by 1996 or 1997….’ Dash carefully reviewed the prosecution memos in each and every case: Whitewater, Susan McDougal, Webster Hubbell, the White House Travel Office, the FBI files. ‘They had nothing,’ he told me…. ‘I said, “Zero plus zero plus zero equals zero.” I was advising they didn’t have it. My view constantly was that if you don’t have it, it may not be there, and your job is over.’ But Starr didn’t listen.” Lelyveld did not mention Dash’s statements in his review.

Lelyveld observes that amidst the frenzy of the impeachment drama I was called a “sleazemeister” in The New York Post, and he sees fit to add that it is “a paper that ought to know when it sees one.” This kind of comment adds nothing to the historical record. It makes for chatter, but nothing more. Condescension cannot ward off history—not for presidents or even newspaper editors.

If the Whitewater story seemed obscure and endlessly unresolved to readers of The New York Times, that was partly because numerous attempts to clarify the facts were resisted for years. The fundamental errors in the Times’s articles were noted from the beginning and called to the attention of its editors, but they mounted a sustained defense of the flawed coverage as though the effort at correction were itself an assault on the integrity of the paper. Though all the federal investigations into Whitewater, including that of the independent counsel, concluded that the Clintons committed no wrongdoing, Lelyveld seems incapable of acknowledging this even now.

The Clinton presidency is over. The facts cannot be altered, but there is still much to be added to our understanding of it. All the participants in this drama, major and minor, will be judged according to the factual record. History will inquire into the Times editor’s responsibility and decisions in perpetuating a false yet momentous version of the so-called Whitewater story.

Sidney Blumenthal
Washington, D.C.

Joseph Lelyveld replies:

Sidney Blumenthal is sorry I didn’t avail myself of the opportunity presented by his book to admit my guilt and that of my former newspaper in the Clinton Wars. He then offers his own summing up for the prosecution, brandishing history’s judgment. If it cares at all, I trust “history” will look at the actual news reports of the day in the context of what was known then. If it needs a further text, it and interested readers of the present would do better to start with James B. Stewart’s meticulous Blood Sport of 1996 rather than Blumenthal’s partisan offering. Stewart’s book—undertaken initially at the instigation of Hillary Clinton (who subsequently withdrew her cooperation)—accurately describes instances in which Times editors decided not to print or pursue Clinton stories having to do with what Blumenthal belittles as the “pseudo-scandals.” It also provides an excellent portrait of Jeff Gerth, the investigative reporter Blumenthal maligns.

I’m sorry to repeat myself but a question I raised in my review is glossed over in practically every paragraph of Blumenthal’s response. That is the question of whether business deals of political figures are newsworthy only when they can be shown to have involved probable criminal activity; whether noncriminal investments are the same as scrupulous and appropriate investments. Neither of the two stories first reported in The New York Times—that of the ill-fated Whitewater land deal or Mrs. Clinton’s spectacular success in speculative cattle futures—talked about crimes. They talked about attempts to make fast money with minimal investment and effort, involving in each case the support of good friends who needed access to state government. I’m not in the least ashamed of having had a role in bringing those matters into the public domain. I’m probably as dismayed as Blumenthal by the fact that, due to the appointment of an independent counsel, we were still talking about them several years later. If we’re still talking about them now, that’s his choice, made apparently in the secure belief that no one at this late date will remember what they were all about or how they unfolded.

Blumenthal’s letter follows the basic technique of an attack ad: take an obscure detail, ascribe large significance to it, then draw a sweeping conclusion. In fact, he criticizes only a single Times article here. That is the original Gerth report on the Whitewater deal, published eleven years ago. He then berates the paper for its alleged failure to cover what he views as an exculpatory report prepared for the Resolution Trust Corporation by an outside counsel nearly four years later. All the points he makes have been made and answered before. None of them responds in any significant way to points made in my review. Still, with apologies for the tedium of a warmed-over argument, I’ll try to volley without spin.

1. Blumenthal makes much of the fact that the Whitewater deal antedated the founding of Madison Guaranty S&L by Jim McDougal. Yes, but the Clintons remained McDougal’s partners in the land deal throughout the life of the S&L and after federal officials suspended McDougal in 1986 and subsequently put the bank out of business. So the sentence Blumenthal quotes from Gerth’s story compounds no error. It is accurate in every respect. The headline confused the time line; the article itself did not.
2. Blumenthal says “the chief premise of Gerth’s article” was that Madison got preferential treatment from the state securities commissioner, a Clinton appointee. In fact, the actions of the commissioner were mentioned only in passing in the front-page portion of the article and she herself was not named until the thirty-third paragraph of the thirty-eight-paragraph report. The central premise was declared in the first paragraph. It was that the governor was a business partner of a banker “subject to state regulation.”

3. Blumenthal says that Gerth erred in saying the commissioner, Beverly Basset Schaffer, approved “two novel proposals to help the savings and loan.” Here he engages in a feat of partial quotation that hardly seems accidental. What Gerth actually described were “two novel proposals to help the savings and loan that were offered by Hillary Clinton.” The governor’s wife and her law firm, Gerth reported, had been retained by her business partner to represent his bank.

4. The proposals were to allow the S&L to issue preferred stock. William Brady, a staff attorney in the department Ms. Schaffer headed, later testified that he questioned the legality of the proposals because they had no precedent in Arkansas. Nevertheless, Ms. Schaffer approved the plan. Four years after Gerth’s article, the Senate committee investigating Whitewater described Mrs. Clinton’s plan as “a novel stock issue.”

5. In 1992 Gerth did not yet know that Ms. Schaffer had represented Madison Guaranty before becoming securities commissioner. Blumenthal, who pretends to have a superior grasp on details of the case, doesn’t mention that fact now. He talks about her memo but leaves out the fact that what actions she took against Madison followed the suspension of McDougal by the Federal Home Loan Bank Board on July 11, 1986. From 1984 to 1986 Ms. Schaffer had the power to suspend McDougal herself and didn’t use it while Madison Guaranty flirted with insolvency. Nine days before the FHLBB meeting, Ms. Schaffer sent a memo to the governor’s office saying: “Madison Guaranty is in pretty serious trouble. Because of Bill’s relationship w/McDougal, we probably ought to talk about it.” The governor’s chief of staff then sent him a memo asking whether he still held Whitewater stock. It was his family’s biggest investment but Clinton had apparently lost track. “No—Don’t have any more,” he replied.

6. Blumenthal is right to say the Clintons had joint liability but subsequent accounting showed that McDougal and his wife covered Whitewater’s losses by transferring funds from other ventures or with new borrowings. The Clintons were equally responsible but for many months the McDougals kept the corporation afloat, avoiding a bankruptcy that would have embarrassed the governor. By an accounting commissioned by the Clintons themselves in 1992, the McDougals put up $92,000 as opposed to $68,000 advanced by them. Later reviews showed that calculation overstated the payments by the Clintons and understated the payments by the McDougals.

7. Gerth was not set up to write about Whitewater by Sheffield Nelson, a Clinton foe. He learned about the Whitewater Development Corporation from a Clinton financial disclosure statement, which listed Clinton’s holdings as an asset. He then asked a Little Rock businessman named Roy Drew what he knew about Whitewater. It was Drew who first mentioned McDougal and Madison to him. He then asked how he could get to McDougal. Drew told him to try Sheffield Nelson, who provided a phone number and phoned ahead. McDougal took the call and agreed to see Gerth, who then spent weeks gathering documentary corroboration for what he was told.

8. The assertion that The New York Times failed to report on the Resolution Trust Corporation’s report that was released nearly four years after Gerth’s initial article is simply wrong. The charge was first was made by Joe Conason and Gene Lyons in their book The Hunting of the President, and was widely mentioned in reviews, including one in this journal by my beloved colleague Anthony Lewis. But articles on what came to be known as the Pillsbury report ran in the Times on July 16, 1995, December 24, 1995, and March 1, 1996. The first of those articles mined the documents that accompanied the report, which was still marked “preliminary” and had not yet been released. The other two focused on the conclusions that there were no grounds for lawsuits against the Clintons or Mrs. Clinton’s firm. By the time the Conason and Lyons book appeared in paperback, its authors had been alerted to the error Blumenthal here repeats and had removed it from their text.

9. In one of his rhetorical fusillades, Blumenthal asks whether I was aware that David Hale’s credibility had been “shattered” at the 1996 McDougal trial. If he had looked at Stewart’s book, he might have realized that two and a half years earlier I participated in a decision not to publish what would have been the first newspaper report on Hale’s account of being pressured by Clinton for a loan. Hale made his charges on the record but he was facing indictment and looking for a deal. We thought that raised too many doubts about his credibility for us to go with a story we could not otherwise confirm.

I hope that clarifies the factual issues. I didn’t quote Sam Dash because I had already quoted Blumenthal himself to the same effect. I can only apologize if my statement about The New York Post was misunderstood by Blumenthal. Maybe I was overindulging in irony, but I was actually trying to express sympathy for him. In a paragraph that listed a number of indignities to which he had been subjected on account of his loyalty to the Clintons, I mentioned having the word “sleaze” hurled at him by a tabloid that regularly traffics in that commodity. It was not my intention to cite the Post as an authority.

There’s one point in Blumenthal’s letter about which I’m passionate. It has to do with the island of Campobello in New Brunswick, just across from Lubec, Maine. I’ve vacationed only a half-hour away practically every summer for the last twenty-eight years. I saw how one of McDougal’s land companies tore up about a third of the island in hopes of a boom in vacation building. Like the venture in the Ozarks, it was a bust. I’d gladly have expounded on this subject if it had been mentioned in the book I was reviewing or if it had any relation to the Clintons. Unhappily, like so much else he throws up here, it’s beside the point. But if this journal ever thinks of naming a Bay of Fundy correspondent, I want it to be known that I’m available.

—May 31, 2003