Monday, Jul. 25, 1977
Going to Bat for Beleaguered Bert
The financial and political troubles of former Georgia Banker Bert Lance reached the point last week where Jimmy Carter himself had to come to the rescue. The President recommended that the director of the White House's Office of Management and Budget be released from a promise that, if kept, could destroy Lance's already shaky financial position.
As first reported by TIME (May 23), in a story filed by Correspondents Rudolph Rauch and Philip Taubman, the state of Lance's finances has grown increasingly parlous. But in coming to the aid of a longtime friend, Carter was compelled to compromise the ultralofty ethical standards that he had set for members of his fledgling Administration.
Carter's charitable move must still be endorsed by members of the Senate Governmental Affairs Committee, which originally confirmed Lance in his job. At week's end the 17-member group had not reached a decision. But from the tenor of proceedings, there is little doubt that the Senators are strongly inclined to follow Carter's lead when they reconvene this week. Even if they do, however, some observers believe that Lance will still be in trouble because of a number of questionable judgments that he has made since taking office.
Undoubtedly, Lance's debts were the main thing. Last January, before he was confirmed as OMB chief, Lance looked prosperous enough. He filed a statement with the Senate committee listing his "direct liabilities" as $5,343,797, his assets as $7,968,354 and his net worth as $2,624,557.
The key to Lance's problem is his ownership of 200,767 shares in the National Bank of Georgia, where he presided before going to OMB. Lance, at
Carter's request, promised the President and the Senate that he would divest himself of his shares in the bank before Dec. 31. (Treasury Secretary Michael Blumenthal made a similar pledge to divest himself of Bendix Corp. stock by Oct. 31.)
Lance's shares, bought largely at a premium price, cost him more than $3.3 million in borrowed money. At one point last week their value had sunk to $1.7 million. One reason for the steep decline was that National Bank of Georgia officers decided earlier this month to write off $2.3 million in loan losses for the first half of 1977. Another was the prospect of Lance's promised divestiture. Since his shares amount to roughly 16% of the bank's stock, the anticipated sale has had an understandably dampening effect on the market value.
Making Do. The stock squeeze is not the only drain on Lance's resources. The genial Georgian, who made $450,000 the year before joining Carter's Administration but now must make do with his $57,500 Government salary (plus at least $150,000 in investment-related income), pays rent of $15,000 a year for a handsome town house in Georgetown. He owns an elegant 40-room mansion in Atlanta, a $100,000 house in Calhoun, Ga., and a vacation home on Georgia's exclusive Sea Island. Nor does Lance stint on entertaining. In June, with his financial position steadily decaying, Lance and his wife LaBelle threw a star-studded party at Washington's Georgetown Inn for members of the Carter Cabinet, plus such other guests as Supreme Court Chief Justice Warren Burger, Publisher Katharine Graham and Mr. and Mrs. Averell Harriman.
The deadline on the sale of Lance's stock has been weighing more and more heavily on him. As news coverage of Lance's troubles increased, the President showed signs of growing concern. He asked Atlanta Attorney Charles Kirbo. 60, his longtime confidant, to fly to Washington, for example, and Carter does not call on Kirbo for advice on routine matters.
Finally, the President sent a letter to Senator Abraham Ribicoff: chairman of the Senate committee that confirmed the budget director, recommending an unlimited extension of the Dec. 31 deadline. The deadline. Carter noted, helped to foster "a substantial artificial lowering of the stock price." Ribicoff agreed to have his committee consider the idea.
Other promises besides the pledge to sell his bank stock are complicating Lance's life. The chunky OMB chief made these commitments during his confirmation hearings, and since then seems to have violated a number of them:
P: Lance promised the Senate committee that, with minor reservations, he would "sever all connections with my present employers, business firms, business associations and business organizations"--presumably including the Georgia bank. Yet on March 29, Lance met in his OMB office with John Stembler, board chairman of the National Bank of Georgia, and Robert Guyton, then being wooed--successfully--to be the N.B.G.'s new president. Lance's explanation is that he "very specifically" had the right to talk about the N.B.G. "with regard to stock and management" until the Dec. 31 divestiture date. A Lance spokesman said that the permission to be involved in selection of a new president came via an "oral understanding" with Senate Committee Chairman Ribicoff. Yet Ribicoff told TIME: "I never recall any such conversation. Nothing was ever discussed about management."
P: Lance also promised that while he held substantial holdings in the N.B.G.. as OMB director he would "disqualify myself from participation in any matters directly involving bank regulation." But on June 28, Lance wrote to Senate Banking Committee Chairman William Proxmire opposing a proposal that would require banks and savings and loan institutions to give special priority to local community credit needs. Proxmire calls the letter "a direct violation of [Lance's] written commitment to the Senate." A spokesman for Lance argued that the letter had been drafted by OMB staff; Lance merely signed it.
P: In May, shortly after the nation's biggest banks raised their prime lending rates. Lance became the Carter Administration's leading critic of the policy. Yet many of Lance's bank loans had interest rates tied directly to the prime rate. When it rose, so did his interest charges. On the other hand, as a major holder of banking stock at the N.B.G., Lance stood to gain--as bank profitability gained--from hikes in the prime.
Though his interests might well cancel each other out, Lance put himself in a questionable spotlight when he spoke out on interest rates.
A possible further problem for Lance is that as OMB chief he has often relied for air transport on the planes of corporate friends, some of whom are bankers. On April 24 he flew--without charge--from Atlanta to San Francisco in the private jet of Cox Enterprises, one of whose major shareholders is Anne Cox Chambers, Jimmy Carter's choice for Ambassador to Belgium. On May 17 he flew from Washington to Knoxville, Tenn., and back aboard the private jet of Knoxville's United American Bank, from which Lance has a $443,000 loan outstanding. Then the plane ferried Lance and his wife to New York. Later, a plane owned by Atlanta Newspaper Distributor Edward Elson flew the couple back to the capital, gratis.
When Lance faced the Senate committee last week, it seemed briefly that he might receive a harsh grilling on most of those topics. Said Delaware Republican William Roth Jr.: "What bothers me is that the agreement [Lance's sale promise] was announced with great fanfare, but when the going gets rough, there's a request for an extension." Republican Charles Percy asked whether Lance's pronouncements on bank prime rates involved the "appearance of possible conflict of interest" and attempted to bore in further. But Georgia's Sam Nunn interjected: "How far can you extend this logic? There's no place in the world where he can put his money where it won't be affected by his decisions."
Otherwise, the committee barely laid a glove on Lance. Summed up Ohio Senator John Glenn: "I think we've gone ethics-happy up here. It's beginning to reach the point where cash is the only acceptable asset for a public official, and you have to keep it at home because if you put it in a bank it might be affected by your decisions."
If Glenn is right, it would be difficult to deny that a key figure in the ethics binge has been Lance's boss, Jimmy Carter. Even the President, however, seemed ready to bend his rigid rules a bit. As he noted at his press conference last week in connection with another touchy subject, "There are many things in life that are not fair"*--and perhaps he has come to recognize that one of those things may be his demand that Lance rid himself so precipitately of his stock holdings. The President's decision to relax his demand for Lance's sake undoubtedly aroused sympathy among Democrats on the committee. Besides, the gregarious Lance seems to have made a favorable impression on a great many Congressmen during his six months in Washington. Said a White House source: "If this had happened in January, Bert probably couldn't have survived. But now he's made a lot of friends in Congress."
* Carter was defending the denial of federal funds to pay for abortions. His remark was strongly reminiscent of John F. Kennedy's "Life is unfair" comment when asked why some military reservists were being kept on active duty following the Berlin crisis.
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