How bad will President Clinton's problem with Whitewater get? Will it fizzle out after the special counsel and investigative reporters reveal a heap of technical improprieties involving the finances of the President and First Lady way back when? Will a trail lead to allegations of felonious behavior on Hillary's part, but not Bill's? Or can things be so bad that we might imagine the impeachment or resignation of the President? How might we think of these questions relating to the nation's governance, the economy, and the effect one scenario or another might have on the financial markets? We've been pondering these questions for months, since we wrote "A One-Term President" in our client letter of December 23, observing that revelations about the President's private life had rekindled interest in Whitewater: "The cloud that is now over him and Hillary is so dark that it now seems almost impossible that a second term could happen," I wrote at the time. "Can President Clinton slog on under this cloud for three years? Probably so, as for the first time in several decades there is no Cold War that requires the presence of a Commander-in-Chief who is in no way crippled. It would have been much nicer if these Arkansas scandals had not appeared, and the nation were spared the unpleasantness that will linger. But what's done is done."
At the moment, two and a half months later, I've not changed my opinion. The presidency itself is still not threatened, but the Clintons cannot escape their Arkansas past, and in the months and years left to his term, we will learn a lot more than we'd like about what went on way back when. I still find myself wanting to believe the President as he wrestles with the press regarding these problems, as he did in a press conference yesterday. The American people are also clearly wishing this would all go away, insofar as it constitutes technical matters that lawyers, accountants and partisan politicians can always fight about. In the country at large, people can't understand what the fuss is about. On a CNBC Newsmakers show this past Sunday, after House Minority Whip Newt Gingrich kicked the issue around for awhile, a caller suggested that he and other Republicans clam up because the issue was "boring." Gingrich had to agree Whitewater was on a different plateau than the Bobbits, the Menendez Brothers and Tonya Harding.
What is driving the issue at the center, though, is the question of Vince Foster's suicide -- which would put Whitewater on the plateau of the Bobbits, Tonya, et al., if it turns out he was murdered or if there was foul play in addition to suicide. In The American Spectator's report last December on the Arkansas state troopers and their stories of Governor Clinton's paramours, there were also insinuations of a liaison involving Hillary and Vince Foster, her law partner in Little Rock. The general public has not heard about this gossip, as the insinuations were not picked up by the national media. Inside the Beltway, the conjecture is part of the mystery mix. The Washington grapevine is rampant with speculation -- the latest being that Foster's body may have been moved from a nearby apartment in the Virginia suburbs to the park where it was found. In any case, the beehive of people interested in pulling at this story until it reaches an absolute dead end will probe every aspect of Whitewater, boring or not, so long as new threads appear. In that beehive, there is an expectation that eventually people who have thus far been reluctant to talk will decide to do so. If committees of Congress were to investigate, the nationally televised hearings would contribute to this process, which is why the Republicans want hearings and the Democrats do not. It seems just a matter of time before the Democrats, who are becoming increasingly worried about revelations ahead, will bend to GOP demands and we will get hearings with witnesses under oath.
This is all very distracting to the White House, to say the least, but what does that mean for the day-to-day functioning of national life? It's not an easy question to answer, because the past is not a very good guide. Our experience with Watergate in 1974 might lead us to prepare for economic decline, as the stock market declined throughout the process and fed into the 1975 recession. Indeed, President Nixon resigned not because he had been caught red-handed, with a smoking gun. He did so because he did not want to put the country through a Senate trial that might exonerate him -- while devouring the nation's energies at a time of economic distress, Vietnam war, and a hostile nuclear power in Moscow. On the other hand, President Reagan's distractions with the Iran-contra investigation did not negatively affect the markets or the economy, and Reagan was superb in his last two years, coaxing along a Soviet Union nearing an end to its communist experiment. In both cases, Nixon and Reagan were under attack from Congresses controlled by the opposition.
In our commentary last Friday, "Trade War With Japan?" we worried about the possibility that the Clinton Administration, pounded by Whitewater and seeing its health-care plan chewed up on Capitol Hill, would take the line of least resistance and push Tokyo into a debilitating confrontation. When you are beset by troubles you tend to circle the wagons, at least keeping your friends from deserting you. The President has been increasingly blaming his woes on the Republican Party, sharpening partisan differences with GOP leadership. At the same time, it would be natural for him to bring the Democratic left, its most partisan wing, closer to him. The AFL-CIO is certainly happier with his tough line on trade with Japan than it was with his bipartisan embrace of NAFTA last fall. This could also shade the White House toward a tougher line on "human rights" with China regarding MFN.
There is a widespread assumption that Whitewater will make it even harder for the President and Hillary to salvage the core ingredients of their health care plan. One of our Wall Street clients yesterday surmised that if Whitewater reaches only to Hillary, but not to Bill, it would be good for the stock market because it will remove the threat of her health plan. But if it reaches the President, it will raise so many uncertainties that the market will retreat and wait for the smoke to clear. I'd worry generally that an embattled White House would cause more harm than not. The health plan was in enough trouble already. The markets probably have taken into account the likelihood that there will be no new burdens imposed on the business community by any legislation that might become law this year.
The Administration can still do a lot of damage in the regulatory field by playing to its left wing constituency. The FCC decision to order 7% off the bottom line of the cable industry is a case in point. Once the Administration senses there is nothing to be gained by cooperating at the center, it would make life more difficult for those in that realm. A sharp tilt left can be seen in the rise of Harold Ickes in the President's inner circle, accompanied by persistent rumors that David Gergen already has one foot out the door. On the growing assumption in the Beltway that the GOP will score major House and Senate gains in November and that Bill Clinton looks increasingly like a one-term President, Democratic liberals suddenly seem weary. The Wall Street Journal is probably right in suggesting that Senate Majority Leader George Mitchell's decision not to run for re-election was at least partly based on his lack of enthusiasm for where this Administration is going.
Alan Greenspan remains the most important fellow in the capital's permanent government, the closest we have to an anchor. It is comforting to know that he has been as careful as he has to remain on good terms with the President and the other key people in the White House and Treasury. There is a lot of room for political uncertainty in Washington so long as the Fed maintains the confidence of the financial markets. As we watch the price of gold continue its glacial decline, reacting to the 3.25% fed funds rate, we can even begin to hope that Greenspan's next move -- perhaps months from now -- might be back to 3%. A bearish scenario for the President need not be bearish for Wall Street and the economy.
In his press conference yesterday, the President warned the Republicans that they will be disappointed when Special Counsel Robert Fiske concludes his investigation. I actually don't think there are very many Republicans who would be disappointed if the President were cleared, when all the facts are investigated and disclosed. He seems, in fact, fairly credible in his continued protestations of innocence of charges that have not even been made against him or his wife. The inquiry is proceeding under a momentum all its own, however. There is nothing gleeful about the Republicans in Congress with whom I talk, only a sadness that there seems to be no end to the hammering the American people are enduring in the relentlessly depressing news of the day, at one plateau of scandal or another.