Can Carter Afford Lance?

The White House says Bert will not go, but keeping him is proving costly

When Bert Lance made a long-scheduled appearance at the Southern Governors Conference in San Antonio last week, it was inevitable that someone would ask him the question: Was he going to resign as director of the Office of Management and Budget? With the aw-shucks, bear-like amiability that has characterized his conduct throughout the exhaustive inquiries into his tangled financial dealings, the beleaguered Bert merely grinned and replied, "I've given no thought to that. I'm there to do a job." Then he flew off to his vacation home on Sea Island, Ga., for the long Labor Day weekend.

If Lance has given no thought to the question of resigning--and that is difficult to believe--there are quite a few people who obviously have. Pressure has been building on Lance since last spring, when the first reports surfaced of his financial difficulties and his high-rolling behavior as a banker in Georgia before he joined Old Friend Jimmy Carter's Administration. By last week rumors were cascading through Washington and Atlanta that his resignation, while not necessarily imminent, was inevitable. One well-placed Atlanta businessman, who is close to both Lance and Carter, told friends that Lance has offered to resign twice, but that Carter talked him out of it both times. Another Georgian quoted Presidential Aide Stu Eizenstat as saying a couple of weeks ago, "It's quite obvious Bert won't survive all this."

This week the pressures will mount further when Congress returns from its recess and two committees convene almost immediately for hearings related to the Lance affair. Also due this week are the final segments of the Comptroller of the Currency's report--the document that did much to bring the heat on Lance to a boil. To reduce the heat, White House Press Secretary Jody Powell declared that Lance had done nothing to deserve being "run out of Government."

Plainly, the pressures on Lance from politicians, press and business were not subsiding as quickly as the White House once hoped they would. If anything, they were intensifying. White House mail was running 2 to 1 against Lance. Various bankers challenged his claim that some $450,000 in overdrafts amassed by him and his relatives from Calhoun First National Bank, of which he was president, was "typical of Southern banking practices." Said a spokesman for the Amercan Bankers Association: "We don't see that as normal or typical, whether it's Southern or Northern or whatever." The President of a Midwestern bank put it more bluntly: "Bert Lance has given the ranking business a black eye."

Whatever support Lance still had in the press seemed to be evaporating. Cartoonists continued to have a field day. One of his strongest backers, Atlanta Constitution Editorial Writer Bill Shipp, suggested last week that he consider quitting if for no other reason than to "save himself."

In the New York Times, Columnist James Reston reported that some of Lance's Georgia colleagues were "privately and sadly...conceding that he is embarrassing the President and will probably have to go." In an editorial, the Wall Street Journal concluded that the major issue is not the questions the Lance affair raises about Banker Bert but the questions it raises about Jimmy Carter. Said the paper of the President: "The central question is not so much 'Is he honest?' as 'Does he know what he's doing?' "

Certainly, Carter's handling of the Lance affair is of far greater importance to the nation than Lance's future. When Comptroller of the Currency John Heimann concluded his inquiry into Lance's conduct as a Georgia banker with the verdict that Bert had done nothing that warranted prosecution, Carter pounced on the report as if it were a clean bill of health. It was not, yet the President made a point of whipping down from Camp David aboard a helicopter and proclaiming before a nationwide TV audience, "Bert, I'm proud of you."

That dramatic show of loyalty immediately injected into the affair questions about the President's own judgment and his moral standing with the public. Carter had pledged to avoid even the appearance of impropriety among his appointees. Now he had opened himself to the charge that he was willing to bend his rigid rules to save a close friend.

Plainly, the White House efforts to keep the well-liked Lance from going under could cost President Carter dearly in terms of personal support and in backing for his ambitious legislative program and foreign policy initiatives. What remained unclear, however, was whether the President's determined support stemmed from loyalty, from resentment at being subjected to criticism (even indirect criticism) from an outright conviction that an old friend and lieutenant was being pilloried, or from a combination of all of these factors (see box).

With the evidence growing that Carter's support for Lance was becoming a liability, the White House this week is bracing itself for the new barrage of bad headlines that is virtually certain to result from the forthcoming round of congressional investigations. No major bombshells are expected, but the potential for further embarrassing questions is great. In the Senate, Abraham Ribicoffs Governmental Affairs Committee will make its fourth inquiry, encompassing Lance's confirmation hearing in January, into his fitness to serve as OMB director. The last hearing (TIME, Aug. 8) was a love feast; as a committee member later put it, Lance was given a "Good Housekeeping Seal of Approval." Having looked foolish in the past, the committee's members can be expected to treat Lance much less gingerly this time around. Chairman Ribicoff and the Southern Democrats apparently remain in Lance's corner, but Republicans Charles Percy, Jacob Javits and John Heinz will likely be tough.

The committee staff, moreover, has reconstituted itself into a true investigative unit, with Ribicoffs approval. Proffessional investigators have been borrowed from the Senate's Permanent Subcommittee on Investigations, and eight to ten staff members have been boning up on every relevant document in the Lance affair. For the first witness, the committee will call Comptroller Heimann. Lance himself is tentatively scheduled to testify the next day.

"This is going to be a full-scale inquiry," says one Senator on the committee. "Once and for all, we're going to settle this issue. We're going to get to the bottom of the Lance affair." Adds an aide to Republican Senator William Roth of Delaware, "Bert's avuncular, easygoing style won't wash this time." Three particular areas of Lance's testimony from previous hearings interest the committee:

Overdrafts It has been established that Lance, his wife LaBelle and nine other relatives collectively amassed huge overdrafts. At one point in the confirmation hearings, Senator Javits asked Lance whether the overdrafts were repaid to the bank with interest. Lance responded, "Yes, sir." That may have been true of the period from mid-1974 to 1975. But the comptroller's report confirmed that Bert's and LaBelle's overdrafts from 1972 through the first five months of 1974 were repaid without interest.

Correspondent Bank Relations Lance, the comptroller's report confirms, received a loan of $3.4 million from the First National Bank of Chicago in January. A month before, the National Bank of Georgia, of which Lance was president, had established a correspondent relationship with a $50,000 deposit. When the Ribicoff committee held its hearings in July, Lance was asked what his role was in establishing the relationship between the two banks. Answered Lance: "Practically none. That was handled pretty much by the folks at both banks. I did not engage in those conversations at all." The comptroller's report on Lance finds otherwise. It states: "Mr. Lance actively participated in establishing the correspondent relationship between NBG and FNBC in November 1976." The whole pattern of Lance's receiving loans from banks with which NBG had or was about to develop correspondent relations was explored by the comptroller's report, and Lance was cleared of any illegality. But the Senators may nonetheless question Lance more closely on the issue.

Loan Collateral During the July hearings, Senator John Glenn asked whether the loan from the Chicago bank was "fully collateralized, or was it just a personal loan?" Responded Lance: "No, sir, it was fully collateralized." To the contrary, the comptroller's report shows that FNBC approved the $3.4 million with $1.6 million unsecured by collateral. As late as July, according to FNBC records contained in the comptroller's report, collateral was only valued at $2.8 million.

The Senators will also probe a number of other areas: How could Lance have pledged the same collateral twice for separate loans from New York's Manufacturers Hanover Trust Co. and Chemical Bank? Why did the Justice Department close its investigation into the Calhoun overdrafts the day before Lance was nominated as OMB director? Was it really common practice, as stated by Jody Powell, for small-town bankers to overdraw their accounts? And why was only a cursory mention made of the comptroller's investigation during Lance's confirmation hearings? Could internal memos at Manufacturers Hanover Trust be so specific about a 20% compensating balance between NBG's correspondent account and Lance's personal loan of $2.6 million without Lance knowing about or even discussing such a balance?

The House Subcommittee on Financial Institutions will also begin hearings this week into banking problems involved in the Lance affair. Among them: insider lending practices, correspondent relationships between banks, the buying of bank stock on credit and the general effectiveness of the comptroller's office in regulating banks. Though Lance's conduct will not be at issue, the hearings will focus on the practices he engaged in as a banker. Yet another congressional investigation--by Senator William Proxmire's Banking Committee--is scheduled to get under way by the end of the month. Proxmire was the only Senator to vote against Lance during the confirmation hearings, on the ground that he lacked administrative and economic policy experience. Now the Senator will take a hard look both at Lance's banking activities and at those of the industry as a whole. The Proxmire committee probe, while illuminating the arcane world of big banking, will also set Bert Lance's conduct into strong relief.

With the pressure bearing down on him from all sides, Lance moved last week to ease the strain in at least one area--his precarious financial position. He put on the selling block his posh Northside Atlanta home, purchased in 1975 for $400,000 and fondly dubbed "Butterfly Manna" by LaBelle. Asking price: a neat $2 million. LaBelle said the intended sale "is just a sign we plan to be in Washington for a long, long time." In the capital, a great many signs were pointing in the other direction.

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