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Paper Trails: Big Timber, the Clintons and the Origins of the Whitewater Scandal

Of the thousands of stories written about the Whitewater scandal, some 90 percent have concerned themselves with the cover-up question: if or how the Clinton White House suppressed evidence in the wake of Vince Foster’s suicide. Almost all the remaining stories deal with the efforts of Governor Bill and the First Lady of Arkansas to keep their friend James McDougal’s Madison Guaranty Savings & Loan afloat. Meanwhile, one of the great untold stories of Whitewater is the chummy nexus of the Clintons and big timber, which may have played a role in the original Whitewater Estates deal and certainly was evidenced in a subsequent transaction that amounted to a last-ditch effort to save the Whitewater Development Corporation from bankruptcy.

The WDC began its ventures with a land deal designed to channel fast money to Bill and Hillary. In 1978, state Attorney General Clinton was in the midst of his first campaign for the governorship when he and Hillary, along with Jim and Susan McDougal, bought 230 acres of riverfront land in the Ozark Mountains of northern Arkansas. Though title to the land was in the Clintons’ name, the couple put down no money. McDougal did not yet have the S&L and was a financial fixer and property dealer. He fronted the money for the down payment on the loan.

And where did the land come from? Its previous owner-of-record was a partnership, 101 River Development, whose role appears to be strictly that of a conduit. 101 River Development held the property for only three days, and folded its tent within a couple of weeks of the sale. The previous owner had been a group of local businessmen. And prior to them, the last owner had been International Paper, Arkansas’s largest landholder–a $16 billion a year timber giant with 7 million acres of land across the United States, and 800,000 acres in Arkansas. It had logged off the best timber on the site and then sold the riverfront acres cheap to the local partnership of Arkansas bankers and businessmen.

How long the local partners held the land, or the terms on which it passed from IP to them to 101 River Development to the Clintons and McDougals, is unclear. But it is evident that the Whitewater sale came at a time when the timber giant was holding a keen ear to the pronouncements of candidate Clinton. The young attorney general vowed that as governor he would restrict clearcutting on land held by companies such as International Paper, Georgia-Pacific, and Weyerhaeuser. These paper and timber companies had gone on a logging binge in the mid-1970s, clearcutting 1,000-acre chunks of forest at a time. Clinton promised to introduce legislation banning the practice as soon as he entered the governor’s office.

Clinton won the governorship in November of 1979. Environmentalists eagerly awaited action from the new governor to stop clearcutting and to stem the flow of industrial poisons that suffused the state’s water and air. But the promises of the campaign trail soon lost their fire. Clinton’s commitment was pallid from the start; his two predecessors as governor, Dale Bumpers and David Pryor, had both tangled with the timber companies on the issue of clearcutting with far more vigor.

When the newly elected governor formed a task force on clearcutting stocked with conservationists, the panel swiftly took heat from loggers and from the boardrooms of Weyerhaeuser and Georgia-Pacific. A startled Clinton kicked off the conservationists, installed industry hacks in their place, and recommended voluntary compliance with soft regulations.

The Arkansas voters turned out Clinton at the end of his two-year term in 1980. He left the governor’s mansion and went to work at the Little Rock law firm of Wright, Lindsey and Jennings. His office was in the Worthen Bank, controlled by the powerful Stephens family. Hillary was at the Rose law firm. Both firms represented the timber giants of Arkansas before state regulatory bodies such as the Pollution Control Board and the Department of Ecology. Meanwhile, Clinton was refashioning himself as a New Democrat, sensitive to the concerns of business and zealous to purge himself of all “progressive” taint.

Clinton recaptured the governor’s office in 1982, the same year that McDougal bought Madison Guaranty Savings & Loan. Among those contributing to candidate Clinton’s campaign treasury were International Paper, Georgia-Pacific, and Tyson Foods. Their investment was swiftly rewarded. Clinton redux was now equipped with a philosophical approach to regulation highly congenial to the resource industries and to the poultry factories.

Tyson in particular became a key ally of Clinton’s after the latter learned his lesson from the trucking dispute. Tyson planes ferried the First Family on its travels and Tyson funds poured into Clinton’s campaign coffers. In return, the poultry magnate received roughly $12 million worth of tax breaks during Clinton’s years as governor. Nor was Clinton diligent in monitoring the environmental record of Tyson Foods or of the poultry industry in general.

But if the disastrous impact of Tyson’s chicken farms on the Arkansas River is fairly well known, the pulp plants of International Paper, Georgia-Pacific, and James River were more toxic still. International Paper’s mill at Pine Bluff is one of the most virulent in the nation, venting nearly 2 million tons of chemicals a year into the air and water.

From 1982 forward, Clinton argued that compliance to environmental standards could best be achieved on a voluntary basis, rather than by the imposition of exigent (and politically perilous) rules and regulations. To this end Governor Clinton stacked his pollution control board with members friendly to industry. In 1985 he promoted and then signed into law a huge tax break for industrial corporations of his state, including the big timber companies. This easing of the corporate fiscal burden was offset by a regressive sales tax on the citizenry.

Clinton’s big offering to the timber companies was the Manufacturers’ Investment Sales and Use Tax Credit, known by critics as the “IP bailout law” in honor of International Paper. Under this program state tax breaks were approved for more than $400 million in projects by International Paper and three other paper mills that then-state Senator Ben Allen of Little Rock called “the worst corporate citizens in Arkansas”–all this in a state with one of the lowest per capita incomes in the nation and where 29 percent of the children and half the state’s black residents lived in poverty.

A few years later state officials tried to keep International Paper and two Georgia-Pacific mills off a toxic waterways list, despite evidence they were contaminating rivers with dioxin. Meanwhile, International Paper, while taking repeated advantage of the manufacturers’ sales tax credit, was ladling out money to candidate Clinton.

It was around this time that Clinton supervised another land deal highly favorable to the timber giants. In later years, taunted with the fact that his state ranked 48th in environmental quality, Clinton would make much of the fact that as governor he had acquired thousands of acres for state-owned forests. Two types of deals were involved here. In one, Clinton swapped state-owned lands mantled with valuable trees for corporate parcels which had been recently cut over. In the other type, the state simply acquired at inflated prices land which the timber companies had recently logged.

Nourished by these benefices, the timber companies, along with Tyson, began to urge Governor Clinton–now nearing the end of his third term–to consider challenging Dale Bumpers for the Senate seat he had held since the early 1970s. The companies had no love for Bumpers. He had led the charge to reform forest policies on federal lands, culminating in the passage of the National Forest Management Act. Bumpers was also, as already noted, a spirited critic of the clearcutting and pesticide practices of the big timber companies in Arkansas. But Clinton was then contemplating a run for the White House. And so the timber companies, along with other corporate interests, funded the Democratic Leadership Council–Clinton’s launching pad.

The kindly deeds President Clinton has performed for the timber giants are well known. But for International Paper in particular, Clinton wrought two spectacular favors. First, he refused to take any action to stem the flow of raw log exports from the Pacific Northwest, where International Paper holds about half a million acres. Second, the generous Habitat Conservation Plans tirelessly promoted by Interior Secretary and fellow DLC member Bruce Babbitt allowed International Paper and Georgia-Pacific to continue to cut trees on land occupied by endangered species such as the red-cockaded woodpecker.

But the funds that helped to establish the DLC may not have been IP’s only big favor to Clinton. In the mid-1980s, when the Whitewater Development Corporation was foundering on the verge of bankruptcy, it was International Paper that sold 500 acres to McDougal and Clinton at the generous price of $1,000 an acre. WDC put little money down and later defaulted on the loan. Finally, when the McDougal/Clinton partnership defaulted on their land purchase from International Paper in 1987, the timber company kept the Clintons off the ensuing lawsuit.

Incidentally, the 500-acre parcel, known as Lowrance Heights, was located near the Castle Grande development to which Hillary devoted the notorious “missing” 60 hours of billed time on behalf of Madison Guaranty. And therein lies yet another possible accommodation between the Clintons and the paper companies: According to Arkansas press accounts, when the Castle Grande deal began to fall apart and threaten Madison’s financial health, McDougal and Clinton pressured timber executive Dean Paul into taking out an $825,000 loan to rescue Castle Grande. Nearly $100,000 of that “loan” ended up in Whitewater accounts, and some of it may also have found its way into Clinton’s campaign chest.  Yet another Clinton/timber thread: Although Hillary’s incredible success in commodities trading has been widely advertised as an exercise in cattle futures, in fact part of her conversion of $1,000 into $98,000 came in trades on timber futures.

The Clintons never so much as visited Whitewater Estates or the International Paper land. But the only person who appears to have made any money in any of the Whitewater real estate deals (aside from the sellers) was Hillary. She “bought”–there’s no evidence she put any of her own money down–a model home on a lot that promptly sold, netting her $30,000.

The linkages between the Clintons and the paper companies actually do not end there. When the Whitewater scandal finally exploded, Attorney General Janet Reno hired as special prosecutor Robert Fiske of Davis, Polk and Wardwell–the New York law firm that also represented International Paper.

The timber companies are not the most familiar pillars of the Arkansas power structure–that status falls to Tyson, Wal-Mart, and the Stephens family–but they are probably the most potent of the lot. All told, International Paper, Weyerhaeuser, Georgia-Pacific, and Potlatch control more than 2.5 million acres of land in Arkansas and operate more than 30 mills. It is scarcely surprising that it crossed the corporate mind of International Paper that a pleasant offering of real estate to the Clintons, via McDougal, would not be such a bad idea.

A version of this article originally appeared in Wild Forest Review magazine.

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Jeffrey St. Clair is editor of CounterPunch. His new book is Bernie and the Sandernistas: Field Notes From a Failed Revolution. He can be reached at: sitka@comcast.net or on Twitter  @JSCCounterPunch

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