Jim McDougal’s relationships with top Arkansas politicians date back to the 1960s, when he and Jim Guy Tucker, today Arkansas’s governor, were Young Democrat activists. Clinton and McDougal became pals when they both worked for Sen. J. William Fulbright in the late 1960s. After teaching at Ouachita Baptist College, McDougal went into real estate. Two early partners were Bill and Hillary Clinton. In 1978, McDougal persuaded them to become partners with him and his wife, Susan, in a deal called Whitewater Development Corp., which was supposed to turn a tract in the Ozarks into a retirement or vacation subdivision.

In the early 1980s, McDougal set out to ride the speculative steamroller. He acquired Madison Guaranty Savings, a little-known institution. Under McDougal, the thrift’s financial portfolio grew rapidly, from $10 million in assets in 1983 to $123 million by 1986. He and some of his associates indulged themselves in the usual pleasures of 1980s thrift barons: the jaguars, the Mercedeses, the $500,000 homes. McDougal aggressively peddled real-estate deals with TV ads featuring McDougal’s glamorous wife on horseback and his brother-in-law, James Henley, a former Baptist minister and social worker who introduced himself to TV viewers as Jim (Friendly) Henley

By 1986 regulators were moving in on Madison Guaranty, which they feared was radically overextended. In 1990 McDougal and two brothers-in-law were tried on charges of bank fraud and conspiracy after McDougal, a manic-depressive reformed alcoholic, failed in an attempt to get himself declared mentally unfit for trial, according to reports. McDougal and the others were cleared, but when his friend Bill Clinton ran for president two years later, the national press began nosing into their business dealings. The New York Times revealed that as governor, Clinton had been in business with a man whose thrift was regulated by his own state agencies. But after lawyers hired by the Clinton campaign to review the deal reported that the Clintons had lost nearly $69,000 in the deal and were only passive investors, the story died rapidly. Last December the Clintons sold their virtually worthless interest in Whitewater back to McDougal. The transaction was handled by the then Little Rock lawyer Vince Foster, who shot himself to death July 20 while serving as Clinton’s deputy White House counsel.

Last week, however, the Clinton-McDougal partnership resurfaced, raising more potentially damaging questions. This time the most intriguing developments involved a retired part-time Little Rock judge named David Hale. The owner of a tiny investment fund that made government-subsidized loans to socially disadvantaged businessmen, Hale was indicted in September on charges of defrauding the Small Business Administration. (He pleaded not guilty.) Two months before, the FBI had raided Hale’s office and taken away files on several transactions, including a $300,000 loan Hale’s company had made in April 1986 to a company run by Susan McDougal. In a telephone interview with NEWSWEEK, Hale maintained that both Jim McDougal and Clinton had directly urged him to make the loan to help bail them out of unspecified financial problems. McDougal denies that the conversations ever took place.

Some of the loan was used to buy a parcel of property whose title was transferred to Whitewater Development Corp. Whitewater, of course, hardly qualifies as a socially disadvantaged small business. McDougal’s lawyer insists that the Clintons had no knowledge of the transaction. In an eerie coincidence, a federal magistrate in Little Rock signed the search warrant authorizing the raid on Hale’s office only hours before Foster’s mysterious suicide. Although there is no evidence to show that Foster found out about the pending FBI raid, or had anything to do with the matters under investigation, the timing fanned media interest.

The White House strategy last week appeared to be to try to contain the story by treating it with contempt. Spokesmen ridiculed the suggestion that the Clintons were ever aware of specific financial dealings by Whitewater Development. The president, asked about the Whitewater tangle during a photo opportunity, insisted: “We did nothing improper.” He added: “Old story.” But the media continued to look for new revelations, in large part because of its ongoing fascination with the Foster suicide and a revived interest in the Arkansas milieu from which Clinton and his coterie emerged.