TIME: Almanac 1995

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<text id=94TT0000> <title> Jan. 10, 1994: The House That Hillary Built </title> <history> TIME--The Weekly Newsmagazine--1994 Jan. 10, 1994 Las Vegas:The New All-American City </history> <article> <source>Time Magazine</source> <hdr> THE ADMINISTRATION, Page 22 The House That Hillary Built </hdr> <body> In their Arkansas real estate venture, the Clintons depended on the buddy system--probably too much By Richard Behar and Jay Carney--With reporting by Laurence I. Barrett and Elaine Shannon/Washington and Suneel Ratan/Flippin "One weekend here and you'll never want to live anywhere else," proclaimed the sales brochure for the 42 lots of the Whitewater project near Flippin in northern Arkansas. However, despite the scenic snapshots and the homey-but-hokey handwritten spiel, no one was buying into the forested real estate development. To spur sales, Jim McDougal, a local savings and loan tycoon, thought he needed a model home--and the help of one of his Whitewater partners, Hillary Rodham, as she then called herself. In 1980 McDougal loaned her $30,000 to build, own and ultimately sell a three-bedroom ranch-style unit. When the buyer of the home later became insolvent, Hillary and her husband Bill Clinton bought the property out of bankruptcy and resold it in 1988 for $28,000 to its present owner. Last month the Justice Department began to subpoena documents pertaining to sales of Whitewater lots. But a well-placed real estate source in the region says investigators are unlikely to find records of the initial transfer of the Clintons' model home. "It was all done on unrecorded contracts," says the source, who suspects that the house changed hands several times before the Clintons bought it again in 1988. "Unrecorded contracts are a damn funny way of doing business." People familiar with Arkansas will say local business is often funny that way. Furthermore, political and business intersections that would cause a ruckus elsewhere--say between a Governor and a man whose company is subject to state regulation--elicit few cries of conflict of interest. But the Clintons are in the White House--and getting snagged on Arkansas roots is now a national spectacle. Every transaction during their political sojourn in Little Rock will become a measure of their character, of their ability to organize, administer and decide. In the First Lady's case, the stories that emerge portray a woman maneuvering through a world of messy connections, clumsy finances and ethical minefields. For example, in Arkansas the law firm of your enemy might just be your law firm. In early 1986, one of the largest savings and loans in Arkansas, Madison Guaranty, was sliding toward insolvency. Its chief lending officer, Harry Don Denton, was furious that a local S&L had sold Madison millions of dollars in bad loans. He wanted the deal undone and at the suggestion of his boss, Madison chairman (and Whitewater partner) McDougal, he turned for help to one of the state's top lawyers, Hillary Rodham Clinton. After meeting with her for several hours, Denton helped her carry the files to her car in preparation for a lawsuit. The suit was never filed. In fact, despite a meeting on the matter between Hillary and an executive from the opposing S&L, Denton learned several days later that Hillary had suddenly withdrawn from the case. Why? She had discovered that her prestigious Rose Law Firm was already representing the opposing thrift in another case. "The conflict issue should have been resolved earlier," complains Denton. Bruce Lindsey, a senior adviser to the President and an old Arkansas friend, defends the action. "Assuming this happened, I don't see why this is important or unusual," he said. In the case with Denton, the future First Lady recognized a conflict of interest. But in the Clintons' relationship with McDougal, Hillary and her husband did not. They remained partners with Denton's boss McDougal and McDougal's wife Susan, a pair of notorious wheeler-dealers who drove the thrift into the ground at a cost to taxpayers of roughly $50 million. Indeed, several months before bowing out of the S&L dispute over the bad loans, Hillary Clinton actually represented Madison before state regulators in a petition to try to raise capital for the failing thrift by selling stock. Defenders of the Clintons would point out, however, that in a state like Arkansas, where the circle of influential people is small, the appearance of conflict is almost impossible to avoid. In one such case, the securities commissioner who would decide to grant Hillary's client a regulatory blessing--Beverly Bassett Schaffer--was appointed by Bill Clinton, the Governor. As state documents indicate, though, Schaffer was as tough on Madison as the federal regulators who had the real power to shut the thrift down. "I may not be Beverly's biggest fan, but she's getting a bad rap from the media," says Lee Thalheimer, her predecessor and a Republican appointee. "I don't think anyone can influence Beverly Bassett." Hillary Clinton, however, clearly faced an ethical problem even by Little Rock standards. "While Rose Law Firm represented people all the time before state agencies, most elected officials would conclude that Hillary had a conflict in this situation," argues Frank White, Clinton's G.O.P. predecessor as Governor. At any rate, the stock deal, though approved, never went through. By the end of 1986, federal regulators had moved in on Madison Guaranty, ousting McDougal as chairman in the vain hope of rescuing the thrift. For nearly two years, the Clintons have explained their business partnership with the McDougals' Whitewater development by claiming they were simply passive investors. As Hillary's law practice shows, however, she was more involved with Whitewater and Madison Guaranty than she has let on. According to Denton, some of Bill Clinton's dealings appear rather tangled as well. Denton says that in 1978, while he was an officer of Union Bank in Little Rock, he made out a personal loan of roughly $25,000 to Clinton and McDougal to help pay for Whitewater acreage. Denton recalls that within two years the Clinton debt was repaid with proceeds from an unrelated loan made by Union to both McDougal and Jim Guy Tucker, the President's successor as Governor of Arkansas. "It was strange and unusual because McDougal's deals with Tucker and Clinton were supposedly independent of each other," says Denton. One of the most troubling revelations involves a $300,000 loan to Susan McDougal, part of which was diverted into Whitewater. The lender: Capital Management, a federally sponsored lending company owned at the time by David Hale, a Clinton-appointed judge. Capital also made a large loan to Tucker. But the purpose of Capital was to make loans to "socially or economically disadvantaged persons," hardly the way one might characterize McDougal or Tucker or Clinton. Hale was indicted in September for fraud and has accused Clinton of pressuring him to make the McDougal loan. The Clintons deny exerting any pressure or knowing about the diversion of funds into Whitewater. McDougal, acquitted on bank-fraud charges, is under investigation again. Hale will stand trial sometime this year. Congressional Republicans, meanwhile, have called for hearings on the Madison collapse as a prerequisite for considering Clinton's bank reforms. In Whitewater only six homes have been constructed. As for the house that Hillary built, its current owner, John Lauramoore, half expects tourists to start lining up outside. "Maybe I can cut up the carpet and sell pieces and say that Bill Clinton walked on it," he says. "Even though he didn't, they wouldn't know it." </body> </article> </text>