NEWS ANALYSIS : Clinton Runs Into Capital Pitfall: the Watergate Trap : Ethics: President is angered by staff’s handling of Whitewater. But he helped fuel cover-up controversy.

President Clinton’s decision to drop White House Counsel Bernard Nussbaum and issue strict orders against further back-channel contacts with the Whitewater investigation came only after a belated realization that the growing appearance of a cover-up might prove more damaging than the ill-starred real estate deal itself.

Late last week, as criticism mounted in the wake of disclosures that Nussbaum had participated in a series of meetings on Whitewater with officials of the Treasury Department, an angry Clinton exploded at his staff, demanding an end to self-inflicted wounds.

“His anger,” said one aide, “was over the fact that the way we were handling Whitewater was being perceived as a Watergate cover-up, and he and all of us here know we operate on a different level of integrity.”

Yet it was Clinton--and First Lady Hillary Rodham Clinton--who for months brushed aside warnings that Nussbaum’s actions, along with others by the Clintons themselves, were fueling the controversy.

As a result, Clinton has run afoul of one of the most clearly marked pitfalls in Washington--the Watergate trap, in which efforts to minimize or cover up a potentially damaging situation can become politically and even legally more dangerous than the original situation.

“Whitewater is not Watergate, but we’ve been acting like it is,” an exasperated senior Clinton aide said shortly before Nussbaum’s resignation. “The siege mentality here is dumb. We ought to learn from the past and not repeat it. We should get all the facts out.”

That assessment was echoed by political operatives and legal experts outside the government.

“It is kind of baffling how very smart people and supposedly smart lawyers come to Washington and think they can manage the news,” said Henry Ruth Jr., a special prosecutor during the Watergate scandal, referring to the tendency of officials such as Nussbaum to try to prevent public disclosure of embarrassing information. “They invariably find out they can’t, and in trying to unsuccessfully manage the news, they do a great disservice to their bosses.”

In the case of Watergate, President Richard Nixon was forced to resign, and several of his top aides went to prison, not because of direct involvement in what Nixon Press Secretary Ron Ziegler called the “third-rate burglary” of the Democratic Party’s headquarters in 1972 but because of actions taken to shield the White House afterward.

The Watergate effort, which amounted to criminal obstruction of justice, added the word “cover-up” to the Washington lexicon. Today, the term applies to any ill-conceived attempt to suppress damaging or embarrassing information--even if no crime is involved.

Indeed, Ruth and others note that in many of the scandals since Watergate, stupidity and poor judgment rather than evil wrongdoing have led to problems. “In most cases we are involved in things that if revealed up front would not be so serious,” Ruth said.

White House aides insist that is the situation with Whitewater, the failed Arkansas real estate development in which the Clintons invested during the 1970s and 1980s, a span of time that included Clinton’s tenure as governor.

Clinton himself has said in repeated public statements that he wants nothing done that would interfere with the various investigations of the real estate venture and the events and individuals surrounding it--including the inquiry of Whitewater Special Counsel Robert B. Fiske Jr.

Yet whether because of inattention, bad judgment or some other reason, the Clinton White House has often seemed bent on creating the opposite impression.

“(Nussbaum’s) incompetence deserves a large share of the credit,” one senior Administration official said, but he added: “I think the atmosphere existed there that created this behavior in a general way.”

Nussbaum’s miscues began after the apparent suicide in July of White House aide Vincent Foster, who was a former law partner of Hillary Clinton’s in Little Rock, Ark., and had handled matters involving Whitewater.

When police came to the White House seeking information that might shed light on Foster’s death, Nussbaum refused to give them direct access to his office. Instead, Nussbaum sifted through Foster’s papers, withholding some.

It soon developed that some of the documents Nussbaum had held back were related to Whitewater. Critics--many of them Republicans--immediately cried cover-up.

The papers in question have now been subpoenaed by Fiske. But at this late date it is almost impossible for Clinton to erase completely the impression of a possible cover-up.

Clinton and the White House also resisted for months the appointment of a special counsel, yielding only when continued revelations about Whitewater made the pressure irresistible.

Some White House aides say Hillary Clinton was especially vigorous in opposing appointment of a special counsel and in defending Nussbaum, who had served as a mentor early in her career and whom she had backed for the post of White House counsel.

“Basically, she thought they could get away with opposing a special counsel because they had been promised there would be no congressional hearings” on Whitewater, one aide said. (Now, GOP pressure is becoming so great that the Democratic majority in Congress may bow to the demands for hearings as well.)

The meetings with Treasury Department officials proved to be the final straw. The department is probing a defunct savings and loan once owned by James B. McDougal, the Clintons’ partner in the Whitewater project. A central question is whether money from McDougal’s S&L; was used to benefit the Clintons.

By briefing Nussbaum and others from the White House on the progress of their activities, Treasury officials did something that is not routinely done for the targets of other such probes.

Some critics suggest Nussbaum had a blind spot on the sensitivity of Whitewater because of his feelings about the Resolution Trust Corp., the Treasury agency founded to deal with the S&L; scandal. The RTC’s criminal referral to the Justice Department began the Whitewater investigation.

Prior to becoming White House counsel, Nussbaum represented the New York City law firm of Kaye Scholer Fierman, Hays & Handler in a case brought against it by the RTC. The firm ultimately paid a $41-million settlement for allegedly misrepresenting the activities of S&L; owner Charles H. Keating Jr. to the government.

After the case was settled, Nussbaum publicly condemned the RTC for its aggressive approach toward Kay Scholer and other defendants in the savings and loan scandal.

Participants say Nussbaum’s meetings with the Treasury Department officials were innocuous, but because they were private, Clinton is in the position of saying “Trust me”--a politically difficult position to maintain in the post-Watergate era.

And the drip-drip-drip of new developments, no matter how small or ambiguous, can have a devastating effect.

Presidential historian James David Barber of Duke University argues that “cover-up” has become a component of the political culture in part because it is often easier for voters to grasp the idea that someone is hiding something than it is to understand the details of the affair itself.

“People cannot really understand the complication of a lot of political news. And so something simple often comes to be the element that is remembered,” he said.

In the same way, says Douglas Bailey, publisher of Hotline, a newsletter on politics, the idea of a cover-up provides a handy lever to opponents who want to keep the probe of any potential scandal alive while the inquiry is in a stage where little about the case itself may be emerging.

“I don’t believe I have ever had a conversation with a candidate or a campaign, where I didn’t start by saying: ‘Look whatever the truth is, once the subject has been raised in any way, you have to make the assumption that it is going to come out. Now do you want it dragged out piece by piece and make you look like a fool and a liar? Or do you want to have it come out all at once and have you look like just a fool? If it comes out all at once, chances are people will be forgiving. If you drag it out, people will never forgive.’

“What is amazing is how many otherwise good and sensible people may understand that advice but simply ignore it,” he said.

Nussbaum “is not venal,” said a close Clinton aide, but he “badly mismanaged the White House handling of Whitewater and has been overzealous in protecting the President.”

Ironically, Nussbaum and Hillary Clinton had reason to be extra sensitive to the cover-up specter. Both were staff attorneys for the House Judiciary Committee’s impeachment inquiry on Nixon.

Times staff writers Ronald Brownstein and Sara Fritz contributed to this story.