This is the second of three excerpts from the book "The Great Whitewater Fiasco: An American Tale of Money, Power and Politics," a Ballantine trade paperback by Martin L. Gross.
One of the most intriguing tributaries of Whitewater, with its convoluted maze involving the Clintons, is particularly instructive just how closely politics and money are lovingly married in America.
The story involves one of the swiftest speculative successes in American history. It has been called Bullgate and Cattlegate, but neither name has stuck. The closest tag is probably the more euphonious "Hillarygate."
Both stories, Whitewater and Hillarygate, actually began 16 years ago, between August and October 1978, a pregnant time for the Clintons, and perhaps equally important in the short history of our times.
Their motives were quite human: to make a big buck. But there was one complication. It was just before the 1978 election for the governorship of Arkansas.
The polls showed Mr. Clinton l,6p6,10l ahead by almost 2 to 1, and Bill Clinton, 32, and Hillary Rodham (she still used her maiden name), 31, were about to become the youngest first family in the history of the state.
Having conquered Arkansas politics, they turned their attention to the gilded world of money. Between them, they didn't have a spare thousand. The governor's job paid $35,000 a year, but he had yet to get his first paycheck. Hillary was then earning less than $25,000 a year as an attorney for the Rose Law Firm.
But as the powers-soon-to-be, they had many chances to get rich -- and many people to help them.
Their two "investments" came almost simultaneously. And best of all, they required almost no capital -- for they had none. The first investment was to make them a quick fortune.
But the second, labeled Whitewater, failed, and would drag the Clintons down into a morass of negative publicity from which they may never really extricate themselves.
The first investment, by Hillary, involved James Blair, then chief outside attorney for Tyson Foods and now their official counsel. A close friend of the Clintons, Mr. Blair was trading cattle futures and making a great deal of money.
Mr. Blair approached the Arkansas first lady-to-be and suggested she open an account. She didn't have to know the first thing about commodity trading. He'd advise her on what to do.
Hillary supposedly invested $1,000 and within a year had run it up to $99,537. The very first day, Hillary made $5,300 on the $1,000 investment: a statistical impossibility, say most experts -- if the rules were followed.
Commodity professionals indicate that Hillary would have had to put up $14,400 for 12 contracts for her to make $5,300 in one
day. But of course she didn't.
The most telling point is that her good luck has been an enormous embarrassment to the Clintons, who initially refused to release their 1977-1979 tax returns for fear the commodities bonanza would be revealed.
A plush 'log cabin'
The Clintons, who have tried to present the image of "Log Cabin Democrats," as Business Week pointed out, carefully kept this VTC capitalist victory from the public for 16 years -- until a team of reporters headed by Jeff Gerth of the New York Times broke the story in March 1994.
Initially, Mrs. Clinton developed a cover story that she had made all the trades by herself by taking Mr. Blair's advice and boning up on the Wall Street Journal.
Then it became known that Mr. Blair had made most of the trades for her. The reality is probably even less sanguine.
The Wall Street Journal says that there is a "suspicion that someone cut a lot of corners to steer Bill and Hillary to nearly $100,000 in commodities gain."
They add: "Or maybe they weren't her trades at all," a theory growing in currency.
Nor is there any evidence that Hillary ever invested a nickel, let alone $1,000. The White House has explained that the Clintons "could not find" the check.
A Columbia University law professor chosen by the White House explain their 1977-1979 taxes believes that since there were no checks and no risk of real loss, the cattle future money could be considered a gift.
Well-dressed in a pink wool jacket, Hillary bravely took questions about her finances from the press.
Why wasn't she bothered by margin calls? (At one point she was $117,500 short, says one expert.)
Perhaps because she was "too good a customer," offered Mrs. Clinton, which hardly describes someone who never deposited the money needed to play the risky commodities game.
The subject then moved to Whitewater. The question, to paraphrase it, was, "If you aren't putting money into the real estate venture and you also know the venture isn't cash flowing, wouldn't you question the source of the funds being used for your benefit?"
"Well, coulda, shoulda, woulda," Mrs. Clinton responded. "We didn't."
What became of the cattle future gains?
When Mr. Clinton lost his re-election bid in 1980, explained Jeff Gerth when interviewed, Mrs. Clinton "used $60,000 of the profit as a down payment on a house in Little Rock. But during the 1992 campaign, I submitted written questions about her finances to her attorney. The answer to the question about where she got the money to buy the house was quite different. She said it came from 'our savings and a gift from my parents.' There was no mention of cattle futures."
Even Mr. Clinton couldn't get the story straight. At a town meeting, he declared that Hillary had stopped trading during her pregnancy because she got "cold feet" when she received a margin call.
The White House quickly put out an updated story. No, she had never received a margin call and Hillary had traded right up through the birth of Chelsea. In fact, in the week of the birth, she made $10,000 more profit.
The portrait of Hillary as "Saint Hillary," as a magazine story once called her, obviously clashes with the reality of a very sharp businesswoman and corporate lawyer who has made her family rich.
In April 1994, Mrs. Clinton's office (she has a taxpayer-paid staff of 13) suddenly announced that she had made other commodity trades back in 1978.
That time she had turned a $6,500 profit. The White House explained that a tax error (one of many to come) had been made. Instead of reporting the $6,500 gain, Hillary had reported a loss of $1,009 to the Internal Revenue Service and has since paid $14,615 in back taxes.
This is no longer any strain on the Clintons. Recent financial disclosures show their net worth as being as high as $1.6 million, most of it Hillary's.
The Clintons are not without gratitude to the Blairs. Diane Blair has been named to the board of the Corporation for Public Broadcasting, and the couple slept at the White House the night of the inauguration.
One columnist, William Safire, has even gone as far as to label Hillary's cattle coup an indirect form of political "bribery," a charge that has been sharply contested by a Tyson Foods spokesman.
The Clintons' second investment, Whitewater, was organized about the same time as Hillarygate, but it was to provide more aggravation for an American president than any upheaval since Watergate.
Concluded next week.
Martin L. Gross is the author of seven nonfiction books, including "The Government Racket: Washington Waste from A to Z" and "A Call for Revolution."