Lance: Going, Going...
Bert's fate seems sealed, but how badly has his boss been hurt?
After four months of bit-by-bit exposure and mounting pressure, the Lance affair last week spun out of anyone's control. Instead of winding down, investigations were being stepped up into the capriciously loose banking habits of Bert Lance, the amiable Georgian who directs the Office of Management and Budget. Each day brought torrents of new allegations, rumors of wrongdoing, hints of still more probes. Inevitably, reports surfaced that Jimmy Carter has reluctantly concluded that Lance must resign. Before long, perhaps before this week is out, one of the President's first major appointees is likely to become the Carter Administration' first major casualty.
Carter insists that Lance be permitted to exit in his own way. The President's embattled friend has demanded a chance to defend himself fully against charges of misusing his top positions at two Georgia banks to enhance his free-spending lifestyle and embark on a political career. Lance should get that opportunity this week in a session with the Senate's Governmental Affairs Committee, which approved his elevation to OMB director last January, ringingly re-endorsed him only seven weeks ago and now seems to feel it was misled. But no matter how forcefully and shrewdly Lance defends his banking past, his usefulness as Carter's penny-pinching Budget Director and as a bridge to the nation's wary business community seems to have ended.
Only a few weeks ago Carter was vigorously defending Lance ("Bert, I'm proud of you"). But the Budget Director's position deteriorated rapidly just before, during and immediately after the long Labor Day weekend. A trio of Senators played key roles: Majority Leader Robert Byrd of West Virginia; Connecticut Democrat Abraham Ribicoff, chairman of the Governmental Affairs Committee; and Charles Percy of Illinois, the committee's top Republican. They argued that prolonging Lance's travail not only would be futile, but could seriously impair the President's ability to promote such Administration priorities as the Panama Canal treaty and the energy program. Before the week was out, all three had called for Lance's resignation. The climactic events unfolded this way:
On Sunday, Aug. 28, three of the Ribicoff committee's staff men flew to Atlanta. They had been dispatched to interview former Lance associates and examine bank records, since the committee in the past had been embarrassed by its lack of independent knowledge. Only a month earlier the committee had given Lance what one member termed "our Good Housekeeping Seal of Approval." The investigators found what they considered evidence of potentially criminal behavior by Lance as a banker. By midweek they notified Ribicoff and Percy.
On Friday, Sept. 2, Ribicoff ended a California vacation and flew to Washington. He was briefed by the investigators on Saturday morning, then phoned Percy in Illinois. After hearing the new evidence, Percy agreed with Ribicoff: the President should be told. They sent a letter by messenger to Camp David, Md., requesting a meeting. It was set for Monday, Labor Day.
On the same Friday that Ribicoff hurried back to the capital, Byrd phoned and asked to see Carter. That was most unusual. Byrd is determined to be the Senate's man, not the President's, and once vowed that he would offer Carter advice only if asked to. In fact, he had never phoned the President before.
The two met that afternoon. Byrd told the President that the Lance case would not simply fade away, that the OMB director's effectiveness was being "seriously eroded," and that Carter's own reputation and effectiveness were in serious jeopardy. The implication of Byrd's message was that if the President was still loath to fire Lance, he should at least distance himself from his wounded friend.
Also on that eventful Friday, Treasury Secretary Michael Blumenthal called at the White House with more bad news: the outlines of a new report by Comptroller of the Currency John Heimann. In his earlier report, Heimann criticized Lance's banking practices but found that they did not warrant prosecution.
In his new report, Heimann found that on numerous occasions Lance may have used an airplane owned by the National Bank of Georgia for both personal and political purposes from 1975 to 1977. The comptroller considered this matter serious enough to refer to the Justice Department for possible prosecution. Political use of the plane could be viewed as a corporate campaign donation and thus a violation of federal election laws. Personal use of the plane, if written off as a business expense and deducted from income taxes, could be a tax crime.
The plane issue might seem minor. The line between using a plane legitimately to build good will for a corporation and using it illegally seems fuzzy. Even so, a criminal investigation of Lance was just one new problem too many for him.
Heimann had also found a new, clear-cut instance of Lance's highly dubious practice of drawing large personal loans from banks with which his own bank had established correspondent relationships. The comptroller's report showed that Lance and his wife LaBelle got nearly 20 loans totaling close to $4 million from Georgia's Fulton National Bank between 1963 and 1975--much of the time when Lance headed the Calhoun First National Bank. In numerous documents related to these loans, the Fulton bank noted that "satisfactory balances are maintained by Calhoun National Bank," implying a direct connection between the loans and the interest-free deposits that Lance's bank had placed with the Fulton bank to establish a correspondent relationship.
"There is some evidence," Heimann's report concluded, "tending to support the view that, but for the correspondent accounts, the loans would not have been made." Heimann noted, however, that such a quid pro quo is not of itself illegal. It must also be shown that the Fulton bank received benefits from Calhoun's interest-free deposit. In this case, Heimann found that Fulton's services to Lance's bank actually cost more than the revenues from the Calhoun money.
The comptroller seemed even more concerned about a similar pattern of personal loans that Lance had established through correspondent relationships with two smaller Georgia banks, in Ringgold and Cohutta, in which he had an interest. Since the two are state banks and do not come under Heimann's jurisdiction, he referred the cases to the Federal Deposit Insurance Corporation. If the FDIC found that Lance's loans violated its regulations, it could refer them to the Justice Department for possible prosecution.
No formal charge of illegality was being leveled at Lance in these new cases. But the day after Blumenthal finished his Friday outlining, Carter's top deputy, Hamilton Jordan, flew down to Lance's vacation house in Sea Island, Ga. One result of his visit was that Lance hired that durable Democratic troubleshooter, Lawyer Clark Clifford, 70, to help prepare his defense before the Ribicoff committee. Cutting short his holiday, Lance flew back to Washington on Monday.
Labor Day was all hard work for Carter too. Back from Camp David, he first met with Lance and his wife at the White House. Then came Ribicoff and Percy with their urgent plea that Lance resign or at least take a leave until his troubles could be cleared up. Carter ruled out either action, contending that Lance should be allowed to defend himself. When the two Senators left the White House, they told reporters that new evidence had surfaced involving "allegations of illegality" and demanded Lance's resignation.
Briefed by Ribicoff over the weekend, Byrd made a second personal appeal to the President, dialing Carter at 10:30 on Tuesday night. Byrd pressed his contention that business leaders, who once found Lance an effective liaison man for Carter, had now been soured by Bert's freewheeling practices. Byrd also argued that the Lance affair was beginning to hurt Carter on the Hill--that his legislative program, already hard pressed, was being needlessly threatened. He pointed out that even next year's congressional elections could be affected.
These appeals and the new evidence against Lance clearly troubled the President. By Tuesday a few men aware of Carter's feelings were convinced that he had made up his mind. He did not want to push Lance publicly, thus undercutting his subordinate's defense. Yet his warm endorsements of Lance abruptly stopped. Asked by reporters on Tuesday whether Lance would quit, Carter replied: "We'll talk about that later." Press Secretary Jody Powell, notably subdued, said he would no longer try to respond to allegations against Lance; the director, said Powell, would soon do that himself.
If the presidential distancing had begun and the outcome seemed certain, the question remained: Precisely what had moved Ribicoff and Percy to push so firmly for an end to the affair? Neither would explain publicly. But a number of possible answers emerged as the Ribicoff committee hearings resumed last week. Republican Percy charged that Lance may have backdated three checks totaling $196,000 early this year for the purpose of taking an improper tax deduction. Percy noted that although the three checks were dated Dec. 31, 1976, Lance had only $27,732 in his various bank accounts at that time. But he received a $3.4 million loan from the National Bank of Chicago on Jan. 6, 1977, and, Percy suggested, probably wrote the checks then, since they were not cleared until mid-January. The checks were used to repay loans and interest, and by backdating them, Lance could have claimed a larger interest deduction on his 1976 tax return.
Committee investigators also discovered that Lance may have profited handsomely from a series of unethical sales of a Beechcraft airplane. The Calhoun bank bought it while Lance was the firm's president. The bank then sold the plane to Lancelot Co., wholly owned by Bert and LaBelle Lance. When Lance became president of the National Bank of Georgia, that bank then purchased the plane from Lancelot. The various sales prices were not revealed.
It was not clear, however, whether these new allegations were what had persuaded Ribicoff and Percy to call for Lance's resignation. In fact, there may well be no "smoking gun"--no incontrovertible, black-and-white evidence of wrongdoing by Lance. With one possible exception, what the committee investigators seem to have unearthed is additional damaging information about Lance's banking practices. Among these findings:
1) Lance used the Calhoun bank more extensively than had been revealed in waging his unsuccessful campaign for Governor of Georgia in 1974. It was earlier reported that his campaign accounts at the bank, which he then headed, were overdrawn by as much as $99,529 at a time. The new allegations are that the bank may have paid for entertainment that Lance offered during his campaign, supplied computers for sending out campaign literature, and diverted employees' time to helping Lance run. The bank also paid many of his campaign bills and listed them as business expenses. Lance apparently reimbursed the bank later.
2) Justice Department officials in Washington have claimed that they dropped a probe into this political use of the Calhoun bank because no laws had been violated. But two assistant U.S. Attorneys in Atlanta insist, in affidavits to the Ribicoff committee, that there were violations and that they had recommended Lance be indicted. The case was declared closed by John Stokes, then the U.S. Attorney in Atlanta, the day before Lance's appointment as OMB director became known. Stokes said no basis for prosecution had been found.
Potentially far more damaging to Lance, however, is an accusation brought against him by Bill Campbell, a former vice president of the Calhoun bank who pleaded guilty last year to having embezzled nearly $1 million from the bank. Now serving an eight-year prison sentence, Campbell has told investigators that "he [Lance] was part of it," meaning the embezzlement. Just how seriously the Senators take Campbell's charge is unclear. Campbell has refused to supply an affidavit, but has asked to appear before the committee. He has also promised to supply documentation of his charges--but by week's end had not done so.
The shy, easygoing Campbell worked as a lineman for Southern Bell Telephone Co. and a tractor dealer, then joined the Calhoun bank in 1968. He rose to vice president in three years. But Campbell apparently found his $18,000 salary inadequate. Beginning in 1971, he began diverting bank funds to his own use, pumping the money mainly into a 460-acre Angus cattle ranch he bought near Calhoun. His main technique, curiously risky in such a small town, was to take out loans in the names of other people and even a local church He filed all the proper papers, then pocketed the proceeds. Even while embezzling Campbell ran up overdrafts as high as $197,058 in his personal account at the bank. Lance has conceded that he became aware of Campbell's "cash flow" problems in 1974. On Feb. 18, 1975, he nevertheless authorized the Atlanta bank, of which he was then president, to give Campbell a $100,000 unsecured loan at the prime interest rate. On July 14, 1975, Lance authorized a $250,000 loan to Campbell--a move later criticized by federal bank examiners.
Campbell's embezzlement was discovered in a predictable way. After Lance left the Calhoun bank, the new president, Atkins Henderson, routinely called a local customer and asked about a loan the man had just made. "What loan?" the startled customer inquired. He had not asked for a loan, despite the papers on Henderson's desk. On July 31,1975, Henderson, Lance and Calhoun Bank Attorney J. Beverly Langford braced Campbell at his farm home; he readily admitted his thefts. Lance immediately notified the FBI.
A different example of the personal trouble--and indeed tragedy--that may be related to the Calhoun bank's liberal lending policies was the apparent suicide of LaBelle Lance's brother, Beverly Banks David, a Jefferson City, Mo., school official. He was found dead on Nov. 24, 1974, in his car; he had started the engine while the garage doors were closed. When his Missouri estate was probated, his solely held assets were valued at $4,177. His wife was astounded to find, however, that the Calhoun National Bank claimed he owed it $254,222. Northwest Georgia Bank in Ringgold lodged claims for $30,000. It turned out that David had borrowed $165,328 from the Calhoun bank between 1968 and 1972. He had also overdrawn two checking accounts there by a total of $73,401. David's wife said she had no idea where all that money had gone. But David did have other assets--stocks and other securities worth an undisclosed amount--that were being held at the Calhoun bank. Before his death, David told friends that these assets, as well as assets of other family members, were handled by Bert Lance himself.
Certainly, Lance must be given every chance to knock down all charges that are being made. The man's ordeal has been severe. But for the nation, the overriding issue is not Lance's difficulties or his fitness for office but just what the affair has revealed about Jimmy Carter. Although the situations are worlds apart in both kind and importance, that familiar Nixonian question is at least remotely relevant: What did he know and when did he know it? Indeed, as various investigations continued last week, some officials who had been involved in checking Lance's record prior to his confirmation as OMB chief defensively raised charges of a cover-up by members of the Carter transition team and Administration.
Still defending his decision not to press prosecution of Lance for bank overdrafts to finance his campaign, former U.S. Attorney Stokes called a press conference to complain that he had given the FBI a full report. The report, he said, should have been forwarded by Carter's transition team to the Ribicoff committee. "Some members of the Carter Administration withheld this information," said Stokes. Stung by accusations that he had prematurely closed the case, Stokes was clearly eager to shift the blame. "Why should I burn," he asked rhetorically, "while this Administration fiddles?"
A parallel claim was made by Robert Bloom, now Deputy Comptroller of the Currency and a career bureaucrat who was acting comptroller when Lance's nomination was approved by the Senate. Appearing before a House banking subcommittee, Bloom fielded a barrage of questions about why he had not alerted Congress to Lance's banking practices.
Bloom's lame defense: he had assumed that whatever he knew about Lance's banking background was also known to Carter staffers who were handling Lance's nomination and supposed they had passed such information to the Ribicoff committee. Yet Bloom had, in fact, warmly endorsed Lance in a letter to that committee and in the classified FBI report. He noted only briefly that the comptroller's office had found some problems at the Calhoun bank--a reference Bloom claimed should have been taken as a "red flag." He certainly did; he kept documents related to those problems locked in a safe in his bathroom, of all places, to prevent them from being leaked.
Bloom also said that at Lance's request, he had not even told the FBI that the comptroller had worked out a cease-and-desist agreement with the Calhoun bank in December 1975. Lance had told him this might needlessly hurt the bank's business. Bloom's action was not without basis, since the comptroller's office cannot legally reveal the existence of such enforcement agreements without approval of the affected bank. The agreement required the end of all overdrafts to Lance and his family, ordered the bank to upgrade its loose lending practices, even questioned Lance's bank salary (his pay has not been revealed). More generally, Bloom told the committee he had not been more critical of Lance because "no one likes to be a skunk at a garden party."
The next witness before the House committee made no claim of a cover-up but nevertheless fanned such suspicions. Donald Tarleton, regional director of the comptroller's Atlanta office, had lifted the Calhoun agreement just before Lance was nominated to OMB. Tarleton testified that Lance had visited him the day he ended the sanctions (Nov. 22, 1976), but insisted Lance had made no request that he do so. The visit, Tarleton said, "served as a reminder" that he had intended to end the agreement. Yet six days earlier, Tarleton had written an internal memo about the Calhoun bank in which he failed to mention any such intention.
As the heat drifted toward the White House, officials there sharply denied any attempt to conceal information about Lance from Congress. TIME has learned that the FBI report on Lance mentioned many of the most important allegations since raised--the overdrafts, the political aid from the Calhoun bank, the large personal loans. But the criticism was muted by high praise in the report from key Justice Department and comptroller officials who had been investigating Lance. They assured the FBI men that his banking record did not make him unfit to run OMB.
But why did the White House fail to send the FBI report to the Ribicoff committee? Because, said White House Counsel Robert Lipshutz, it was, on the whole, favorable. Moreover, raw FBI reports have not normally been a part of nomination hearings unless a Senate committee asks to see them. Ribicoff's had not. Protested Lipshutz: "Should Jimmy Carter personally audit the business affairs for the last two or three years of everyone he wants to appoint?"
That is not quite the right question. It is whether Carter, knowing what he did about Lance, should have been so eager to appoint him to high office. Clearly, Carter knew before nominating Lance that he and his family had seriously overdrawn their accounts at the Calhoun bank, that the comptroller had ordered such overdrafts stopped, that possible political campaign irregularities had been referred to the Justice Department. He also knew that the Calhoun agreement had been lifted and the Justice case closed. Although he was aware that Lance had often borrowed money, he apparently did not know that the loans were so large and involved correspondent relationships.
Whether or not specific evidence emerges of a White House cover-up of Lance's background, there is little doubt of where the responsibility lies for an appointment gone wrong. It is with the President. Reports TIME White House Correspondent Stanley Cloud:
"Jimmy Carter's determination to appoint Lance was the wellspring. Everything else flowed from that: the unseemly eagerness with which the comptroller and the Justice Department moved to erase the black marks on Lance's record; the FBI's 'yes but' report, which laid out adverse facts and also included widespread praise of Lance; the failure of key Carter staffers to see the political dangers in the appointment; the failure of the Senate committee to investigate more thoroughly." The affair illustrates a disquieting fact about Carter: when he likes and instinctively trusts someone, he readily overlooks his weaknesses.
Whether Carter's tolerance stems from an unhealthy cronyism or a sympathetic willingness to forgive faults is not clear. But it does not reflect favorably on his sense of political reality. Although Carter has made some excellent Cabinet appointments, his choice of Lance and his concentration of Georgians on the White House staff do not square with his frequent assertions that he has sought the best possible person for each key job.
Certainly, Carter has been hurt by the Lance affair. His reputation as the champion of ethical purity has been permanently tarnished--a point that Delaware's Republican Senator William Roth hammered home with devastating effectiveness last week merely by citing two Carter comments before the Ribicoff committee: "Just staying within the law will never be enough for a Carter campaign or a Carter Administration." And: "The Watergate tragedy showed that concealment of a mistake or impropriety can be more serious in some instances than the impropriety itself." Just how seriously Carter's effectiveness has been damaged is less clear. A Harris survey released last week showed Carter's public approval rating had fallen from 59% in July to 52% in late August (at the same period in their presidencies, Gerald Ford had an approval rating of only 39%, and Richard Nixon 65%). Only a third of those questioned approved his handling of the Lance problem.
His rating could fall even further. Only a few weeks ago, Congressmen visiting their districts were hearing almost nothing about Lance from constituents. Now some of them are hearing almost nothing else. Reports from TIME's U.S. bureaus confirm this concern. Atlanta Bureau Chief Rudolph Rauch noted that Carter's support of Lance--"Bert, I'm proud of you"--is proving costly: "With that declaration Carter managed to obliterate the one element that made him different--the innocence of the outsider, the incorruptibility of the unentrenched. That difference was his major hold on the American people." Other bureaus saw that hold slipping as well. From Chicago, Midwest Bureau Chief Benjamin Cate reported that Carter had lost credibility because of his "mulish support of Lance in the face of the overwhelming evidence that his Budget Director was, at the very least, a wheeler-dealer. Had Carter cut his losses early on by easing Lance out, he would have gotten himself off the hook." From Boston, Senior Correspondent James Bell noted: "A wide variety of politicians, businessmen and academicians only want to know when Lance is going and why he hasn't gone already. You can almost hear Carter's support dripping away like a faucet in the night."
Can Carter repair the leaks? That could depend on how swiftly, and skillfully, he moves to cut his losses. At week's end Senate Majority Leader Byrd reiterated the advice that he had offered the President on Tuesday. Lance "should have his say before the committee and then resign," said Byrd. He added: "It is inevitable that he will resign." Carter's reply, delivered while campaigning in New Jersey for Governor Brendan Byrne, was ambiguous. "I respect the opinion of people like Senator Byrd," said the President, "but I agree with him that Bert ought to have a chance to explain."
For Jimmy Carter, the affair may be a domestic Bay of Pigs, on a far less serious level. John Kennedy shouldered the blame for that disaster and emerged from it scarred but, in a sense, enlarged. How Carter now concludes the Lance affair may well determine not only how bad his scars will be but also how capable he is of growing in the presidency. Blaming others for having failed to detect Lance's flaws, or denying that the appointment was a mistake, would do him no good and could damage him further. But if Carter were to assume full responsibility, and if he were to admit that his "Bert, I'm proud of you" statement was a blunder, he could conceivably salvage something from the affair after all.
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