In November, 1976, President-elect Jimmy Carter announced that he had nominated his friend and banker from Atlanta, Bert Lance, to be his OMB director. In the first months of the Carter presidency, Lance developed into perhaps the President’s most trusted and influential adviser. But there was a problem. Lance, during his Senate confirmation hearings, had promised to divest himself of stock he held in the bank he formerly ran, in order to avoid any conflict of interest in his role as budget director. However, when it became apparent that he would suffer a deep financial loss by divesting within the year, Lance sought an extension to delay divesting until the bank’s stock position improved.
That request triggered a renewed scrutiny of Lance’s finances, particularly the method by which he had bought the stock in the first place. Media investigations began, congressional hearings were held, and the comptroller-general’s office conducted an inquiry into Lance’s financial dealings. Although Lance was cleared of any legal wrongdoing, the investigation also revealed that he had long capitalized on his position as bank director by frequently compiling overdrafts on his account. The money was always repaid, and Lance pointed out that this was not unusual practice for the director of a local bank. If not illegal, however, the overdrafts hinted at a double-standard; members of the public were not allowed the same courtesy. The media, scarcely two years off of the Watergate scandal, redoubled its efforts to investigate Lance’s banking practices, and uncovered more instances of financial dealings that, if not illegal, were perhaps ethically dubious and had not been disclosed by Lance. (It turned out that Lance had used a bank’s deposits as, in effect, collateral to finance his own borrowing. There were also allegations that he used a bank-owned jet while campaigning for Carter.) With the nation watching via televised coverage, he was called back to testify before a congressional oversight committee. Although he defended his dealings, the media were now in full feeding frenzy, with broader investigations poised to begin. Lance realized he had become a lightning rod for controversy, and the ongoing story threatened to undercut Carter’s presidency. He offered, and Carter accepted, his resignation in the fall of 1977. It was a blow from which Carter’s administration never truly recovered. Lance had provided a voice of wisdom and experience within Carter’s White House, and his loss was keenly felt.
There are several important lessons from the Lance affair, all of which may – I repeat may – be relevant in the aftermath of recent events involving charges of influence peddling by Illinois Governor Rod Blagojevich. First, Lance broke no laws. Instead, it was the perception of wrong-doing – the faint whiff of favoritism and double-standards that brought him down. Second, there is no evidence that Carter knew anything about Lance’s alleged financial improprieties. Nonetheless, the controversy in the eyes of both the media and much of the public inevitably became a litmus test for judging Carter’s integrity and leadership. In the end, to protect his own reputation, he was forced to let Lance resign. Third, Carter waited much too long before pulling the trigger on Lance; the controversy extended eight months into this first term when crucial first impressions are formed. In retrospect, Carter would have been much better off if Lance had either resigned when he realized he could not sell the stock at a profit, or Lance had stuck to his initial agreement and sold the stock at a loss.
Hindsight is 20/20, of course, but sometimes history can also serve as a guide for future presidents. As most of you know by now, the Feds arrested Blagojevich on charges of wire fraud and bribery, the result of a five-year-old public corruption investigation of pay-to-play schemes, including insider-dealing, influence-peddling and kickbacks involving Blagojevich, his chief staff aide and perhaps other public officials. Among the allegations against Blagojevich are charges that he sought to ‘sell” Obama’s vacated Senate seat.
In light of these charges, the Lance affair, I argue, provides Obama with a cautionary tale regarding how a president can become ensnared in ethical controversy involving aides – even aides who have done nothing legally wrong – and what to do to avoid it. First, as with Carter and Lance, there is no evidence of any wrongdoing by Obama or his aides. Indeed, the leaked transcripts of tapped telephone conversations indicate that Blagojevich was angry because Obama and his aides were not playing ball. Obama already has come out to say that he had no direct conversations with Blagojevich about filling the Senate position. Nonetheless, there are potential storm clouds on the horizon. Let’s be clear: there is nothing wrong with Obama, or his aides, discussing Obama’s replacement with Blagojevich. Indeed, one would have expected – even hoped – that a smart politician like Obama would discuss the list of possible Senate replacements, or would entrust a key aide with this task, to insure placing a reliable vote and political ally in the Senate. And one of Obama’s senior White House aide-designates, David Axelrod, was quoted just recently on television as saying that Obama and Blagojevich had in fact discussed filling the Senate position. But yesterday Obama went on record to flatly deny that any conversation of that type took place. Also yesterday, Axelrod reversed himself and supported Obama’s recollection, saying he was mistaken and in fact Obama had never discussed his replacement with Blagojevich. The change in Axelrod’s story, no matter how innocuous, will inevitably trigger further media inquiries regarding whether he is covering for the president-elect. More generally, one wonders why Blagojevich is complaining that Obama and his aides are not playing ball if there was not any discussion between the two camps regarding filling Obama’s Senate seat. My guess is that there almost certainly were talks between Obama’s aides and Blagojevich about replacing Obama. One potential point of contact: Rahm Emanuel, Obama’s White House chief of staff-designate and former Illinois congressman who worked closely with Blagojevich during the latter’s run for Governor. It would make perfect sense for Emanuel to have discussed Obama’s replacement with Blagojevich. To my knowledge, Emanuel has not yet commented on this issue. It may be that no conversation of this type took place. But if it did, no laws were necessarily broken.
As in the Lance affair, no one in Obama’s administration has been accused of any wrongdoing. But the Lance affair is a reminder that the perception of covering up a potential wrongdoing – even in the absence of any evidence of wrongdoing itself – can be politically fatal. The danger to Obama is not if there were talks between his aides and Blagojevich, but if in the effort to create distance between Obama and Blagojevich his aides create the perception of a coverup by insisting that no contact – even indirectly - took place between Obama and Blagojevich. If the transcripts reveal otherwise, that could place Obama in the delicate position of acknowledging that he knew of discussions to fill his seat. One could imagine him trying to parse words, as in, “I never had any direct talks with Blagojevich, but I did authorize my aides to do so.” Or, “I did not authorize these conversations, but my aides reported back to me about them.” If the transcripts indicate that Obama’s aides were working on his behalf after his aides insist that Obama knew nothing of this, then issues of credibility arise. Media inquiries will intensify, aided and abetted by the conservatives in the blogosphere. And there is always the danger that transcripts will be released showing that one of Obama’s aides listened to Blagojevich making a sales pitch regarding the Senate seat, and did not report it.
The crucial point is that if there were discussions between Obama’s aides and Blagojevich regarding filling the Senate seat, and that Obama implicitly condoned those talks or knew of them, those involved should anticipate that it will become part of the public record and thus they should acknowledge those conversations now. Carter’s mistake was failing to anticipate the potential fallout from allegations of impropriety on the part of his senior aide. If Obama’s aides did discuss the Senate seat, Obama needs to be proactive and reveal that those conversations took place, before they are revealed through media inquiry or leaks from the District Attorney’s office. And if those revelations contradict any public statements by Obama’s aides, or implicate the aide in question by showing he knew that Blagojevich was selling the seat, Obama will be best served by accepting the aide’s immediate resignation. The last thing Obama needs is to spend his first months in office watching a senior aide slowly twisting as he defends himself against allegations of wrongdoing.
This is all speculative at this point, of course. Indeed, it may be that Obama’s aides not only will not be implicated in a coverup, but instead will be shown to have helped blow the whistle on Blagojevich. We should know more in the next few days. No matter the outcome, the crowning lesson of the Lance affair is worth remembering: no aide, no matter how senior, is bigger than the President. In the end, it is the President who will suffer from any mistakes those aides make.