Clinton, the Fed & the Arkansas Scandals/Why We Love "It's a Wonderful Life"
Jude Wanniski and David Gitlitz
December 21, 1993



Today's meeting in Washington of the Federal Open Market Committee finds the Fed as a player in a drama with potentially far-reaching political and economic ramifications. With pressures on the Fed coming from all angles, the conduct of monetary policy is now a pawn in a political chess match with unbelievably high stakes. President Clinton's pre-emptive barrage last week against a Fed snugging of short-term rates ("Clinton & Greenspan: Is the Party Over?" 12-15-93) may have only been the tip of an iceberg; one possibly extending to the Arkansas financial activities of the President and First Lady, and to the suicide of their close friend and counselor, Vince Foster. This combination of events may now explode into a White House scandal of Watergate-like proportions. The radio and T.V. talk shows are steaming with reports, stemming from a story in the latest issue of The American Spectator, of Arkansas state troopers who claim knowledge not only of Bill Clinton's escapades as governor, but also of a Hillary affair with Vince Foster. With its lead editorial yesterday, "Open Up On Madison Guaranty," The New York Times signaled it has no intention of protecting the President if the trail leads from smoke to fire.

Our concern here is a spillover of scandal politics into economic policy. The Fed, already under nearly constant assault in recent months from House Banking Committee Chairman Henry Gonzalez (D-TX), is now facing a challenge from an Administration that looks as if it has a lot to hide. Until last week, Gonzalez's effort to bring the Fed under tighter political control seemed inconsequential, what with President Clinton in Fed Chairman Alan Greenspan's corner. Now, with the Fed's independence a growing problem for a White House under siege and a press corps that smells scandal, the Administration is moving vigorously to keep the Fed in check. It has floated a proposal to strip the Fed of its regulatory authority at exactly the same time that the Fed, among others, is honing in on Arkansas bankers with close ties to the Clintons. Last week's volley on monetary policy may be an extension of the same thrust, a not-so-veiled threat to the central bank to make no waves.  

Treasury Secretary Lloyd Bentsen has not only outlined a banking regulation package that would eliminate the Fed's jurisdiction as a regulator -- citing the inefficiency of the current multi-regulator system -- but has also done so in bare-knuckled fashion, dropping any pretense of civilized discourse with Greenspan on this issue. Greenspan, in an article in last Wednesday's Wall Street Journal, warned that taking the Fed out of the regulation side of its business will separate the central bank from hands-on knowledge of the financial system, and eliminate a "necessary set of checks and balances to the oversight of depository institutions." Bentsen responded with an extraordinary blast, out of either ignorance or deception, which startled Fed officials in its intensity: "It's hard to imagine that the integrity of monetary policy and the stability of the financial system rests on the [Fed's] continued oversight of those banks. Most financial crises have nothing to do with banking." Not only is this nonsense, but it is also totally out of keeping with what had been the administration's carefully cultivated relationship with the Fed.

As the White House circles the wagons, the unfolding scandal is being stoked by House Republicans, with Rep. Jim Leach (R-IA), the ranking Republican on House Banking, leading the way. Leach could hardly have been more incendiary than he was in a Beltway speech last Monday, citing "indications that the current occupant of the White House may have benefitted from a flagrant abuse of the deposit insurance system when he was Governor of Arkansas." Leach argued: "The proposed structure [of the Administration's banking reform] would 'Presidentialize' authority over bank regulation, raising the coercive specter of Presidential money managers...demanding political contributions from regulated financial institutions with the implication that regulatory decisions could be affected." Leach had asked Gonzalez to launch a Banking committee investigation into the activities of Madison Guaranty, a probe the chairman at first said he was prepared to undertake. On November 11, writing in The Washington Times, Paul Craig Roberts laid out a series of assertions that he suggested could lead to the departure of the Clintons if they were seriously investigated. After this column, Gonzalez scrapped any plans for an investigation. 
The allegations relate to a variety of financial dealings involving the Clintons. The President and his various political campaigns have received unusual largesse from several Arkansas banks over the years, some of which have gone belly up and/or are under federal investigation. Little Rock's Worthen Banking Corp., which provided a $3.5 million line of credit to keep the presidential campaign afloat at a critical juncture in 1992, is the target of a Fed probe. Its chairman, Curt Bradbury, told the Arkansas Times just before last November's election, "I would like to be in a position to think I could call the president of the United States and give him my views on the Federal Reserve, for example." Madison Guaranty, the now-defunct, state-chartered Little Rock savings and loan, seems to have received all manner of forbearance from Clinton's people. Its chairman, James McDougal, helped retire a $50,000 personal loan Clinton drew from another bank to help finance his 1984 gubernatorial race, possibly using depositors' funds. There are stories surfacing in The Washington Post concerning investments that the Clintons made with McDougal in a land development deal that could involve tax fraud. The whole matter -- including the involvement of Hillary's Rose law firm in Little Rock -- is now the subject of a Justice Department investigation, spurred by the apparent post-suicide disappearance of a file Vince Foster (also a former Rose partner) was keeping on the McDougal dealings. 

These are the factors facing the FOMC as it meets today to set monetary policy for the next two months. During this unsettling period, we can only hope the Fed maintains its balance and demonstrates why it is given political independence. With the President besieged, Greenspan more than ever must provide an economic anchor. 

David Gitlitz


In a remarkable editorial last week, "Why We Hate 'It's a Wonderful Life,'" The Wall Street Journal grumped about the ubiquity of the Frank Capra/Jimmy Stewart movie classic during the Christmas season. The newspaper urged the 1946 film "about a guardian angel's rescue of a suicidal man" be shelved for 20 years or so, to spare us "this heart-warmer saturated with bathos and bleakness." It would rather watch "Casablanca" or "All About Eve," or, as a Christmas-TV movie tradition, any version of Charles Dickens's "A Christmas Carol." We emphatically disagree.

"It's a Wonderful Life" is in fact not about "a guardian angel's rescue of a suicidal man." It is by far the most profoundly American story celebration of the awesome importance of all human life. Christmas itself celebrates the greatest life ever lived -- for no life has had a more important, far-reaching influence on all of human history than that of the Christ child, born into the humblest of families, in a stable near Bethlehem. In this sense, the British "Christmas Carol" is not about Christmas at all, but is rather a straightforward secular appeal to the greedy rich to help the needy poor. It is the all-time favorite Christmas tale of atheists, unitarians, do-gooders and socialists. 

"A Wonderful Life," on the other hand, is about the sanctity of life. It reminds us that no matter how humble our beginnings, how small and insignificant we might seem to the Henry F. Potters of the world, or to the editors of The Wall Street Journal, our behavior ultimately touches on the lives of the rest of mankind. Even the seemingly trivial contributions that each and every one of us can make in the furtherance of good not only have pervasive effects, but eternal consequences. When, in a moment of despair, George Bailey of Bedford Falls wishes he had never been born, an angel permits him to see what the world would have looked like if he hadn't. We in the Christmas TV audience then share with George Bailey not bathos and bleakness, but the exhilaration of the awesome power to do good, or evil, that each one of us possesses. Whether we are rich or poor, whatever our station or rank, each one of us, each individual, can and do change the history of the world. We can never relax. The forces of darkness never do.
We can understand why the movie message is an irritant to corporatist elitists as well as communists: The former rely on the superior wisdom of the wellborn or educated elite to change what history needs changing; the latter are forced to suppress the creativity of the individual in order to exalt the security of the collective. They'd rather view "Casablanca" or "All About Eve," each a terrific flick, in its own time. At Christmas, though, we can't get enough of "It's a Wonderful Life." Which it is.