Whitewater runs deep - investigation into Bill and Hillary Clinton's real estate investments that may have involved abuse of government funds - includes satirical ideas for motion script that Oliver Stone could produce about the Clintons - Cover Story

FROM UP CLOSE, the collection of scandals labeled Whitewater seems both complex and trivial, like a swarm of dots on a TV screen. But it is neither. With a few exceptions, all the alleged crimes and improprieties fall into four slots: Whitewater Development Corporation and Madison Guaranty S&L (the "piggybank"); the activities of Hillary Clinton and three of her partners at the Rose Law Firm; sex; or cover-ups of the first three. The four-pronged configuration of events reflects one reality: for 14 years, Bill and Hillary Clinton ran with a crummy crowd, nourished in part by state-capital mores, in part by yuppie corner-cutting. They were the Masters of the Universe, Little Rock division. In 1992, the crowd, and its habits, went national.

Some of the alleged misdeeds of the Clintons and their friends are simply sleazy or embarrassing. Some are criminal. On January 20, Janet Reno appointed Robert Fiske as special prosecutor to investigate the matter. But what we learn over the next year or two will depend less on Fiske than on the efforts of Congress and the press, and the curiosity of the public.

The Piggybank

WHITEWATER first came to public attention in a March 8, 1992, story in the New York Times. (It would be about the last time the Times was ahead of the curve on the case.) The story reported that the Clintons had taken tax deductions in the mid Eighties on interest payments for loans that had in fact been paid for them by the Whitewater Development Corporation, a real-estate scheme in northern Arkansas which they half-owned. Clinton, who had struggled through the Gennifer Flowers scandal only weeks earlier, asked James Lyons, a friendly lawyer, to look through his Whitewater records, such as they were. On March 28, Lyons reported that the Clintons had lost $68,900 on the venture (see "Cover-ups," below). Reasoning that bad investors can't be tax cheats, the press let the story drop.

By the fall of 1992, the Resolution Trust Corporation, which is charged with cleaning up the S&L mess, was looking at Whitewater's other owners, James and Susan McDougal. James McDougal had known Bill Clinton since the late Sixties. The two couples formed the Whitewater partnership shortly before Clinton was first elected governor in 1978. Four years later, McDougal bought Madison Guaranty, a small thrift. It got bigger. McDougal acquired a blue Bentley, and the nickname "Diamond Jim." Susan's nickname was "Hot Pants," because that's what she wore on commercials promoting Whitewater. In 1989, Madison Guaranty went under, at a cost to taxpayers of $60 million.

An RTC document named the Clintons as potential witnesses to the deeds of McDougal and his "shell corporations." The Bush Justice Department would not give the matter top priority in the homestretch of a presidential campaign, and the Clinton Justice Department let it lie. But in October 1993, the RTC prodded Justice again, and Whitewater once more became a matter of public discussion.

One subject the media have discussed has been favors McDougal allegedly did for the Clintons. Representative Jim Leach (R., Iowa) has called Madison "a private piggybank." Most of the crooked S&Ls of the Eighties benefitted their owners. But Madison Guaranty also extended itself for an array of well-connected Arkansans, including the Clintons. McDougal has claimed that in 1984, Clinton complained that he was hard up. "I asked him how much he needed, and Clinton said about $2,000 a month." Madison Guaranty put Hillary Clinton on a $2,000 a month retainer, paid through the Rose Law Firm where she worked--an arrangement that lasted for 15 months. The White House denies that Clinton sought business for his wife.

A year later, McDougal helped Clinton retire a big bank loan, possibly with the unwitting help of Madison's depositors. In the last days of the 1984 gubernatorial campaign Clinton, feeling a case of election jitters, borrowed $50,000 from a tiny bank in eastern Arkansas, run by a member of his staff. After Clinton won, he asked McDougal to "knock out the deficit." Madison held a fund-raiser in April 1985 which raised $35,000 for Clinton, but investigators suspect that $12,000 of that money--four certified checks for $3,000 apiece--was fraudulently raised. One of the "contributors" whose name appears on one of the checks denies he ever gave $3,000 to Clinton in 1985, for the excellent reason that he was a Republican college student at the time.

More serious are the favors the Clintons may have done for McDougal. The feds were taking a grim view of Madison Guaranty by 1984; the Federal Home Loan Bank Board called its lending practices "unsafe and unsound." In April 1985--the same month as the fund-raiser--Hillary Clinton earned her retainer by proposing a rescue plan for Madison to the Arkansas Securities Department. (The plan proposed that Madison be allowed to sell preferred stock, and offered, as proof of its health, an optimistic audit by Madison's accounting firm.) As luck would have it, the commissioner of the Securities Department whom Hillary's husband had just appointed was Beverly Bassett (now Beverly Bassett Schaffer), a big-hair woman who had done work for Madison Guaranty in an earlier incarnation as a securities lawyer. It doesn't get any tighter than this. In a letter addressed "Dear Hillary," Bassett okayed the plan.