Shake-Up Expected at Treasury Department : Whitewater: Lawyer who gave embarrassing testimony may be first to go. White House says it stands by officials.

Jean Hanson, the Treasury Department lawyer who contradicted a senior Clinton Administration official before a bank of television cameras, appears likely to become the first casualty of congressional hearings into the Whitewater affair.

Before it’s over, she may have plenty of company.

Hanson, the department’s general counsel, is expected to be pressured to resign by Treasury Secretary Lloyd Bentsen in the near future, according to department officials who spoke on condition of anonymity.

“I would not put a lot of money on Hanson staying,” one source said. “Secretary Bentsen is loyal to his staff, but she did not help herself in these hearings.”

During two weeks of nationally televised hearings into the Administration’s handling of the Whitewater controversy, Hanson testified that Deputy Treasury Secretary Roger Altman had not fully disclosed the history of contacts between White House officials and savings and loan regulators who were looking into one aspect of the tangled Whitewater affair. She said Altman instructed her at one point to brief a top White House official about the status of the case, a directive that Altman said he did not recall.

Treasury officials said Hanson’s performance during the Whitewater hearings has poisoned her relations with Altman, and few in the department believe that the two can continue to work together. “If she does manage to stay, she is going to have to have a peace summit with Altman,” one senior official said.

Even if Hanson decides to step aside, she may be only the first to fall, sources said. The jobs of other senior Treasury officials--most notably Altman--remain in jeopardy despite repeated statements of support from President Clinton, according to senior officials at both the White House and the Treasury Department.

Publicly, at least, the White House continues to stand by the team at the department. “We have confidence in the people that serve in this Administration,” White House Chief of Staff Leon E. Panetta said Sunday on NBC-TV’s “Meet the Press.”

But privately, aides say it seems certain that a major shake-up is in store at the department as a result of embarrassing disclosures about the department’s role in relaying information about the S&L; probe to the White House early this year.

Top Treasury officials had knowledge of the investigation because the department oversees the Resolution Trust Corp., the agency responsible for cleaning up the wreckage of the thrift industry. RTC investigators were trying to determine whether the Whitewater Development Corp., an ill-fated Ozarks land venture involving the Clintons, contributed to the taxpayer-financed collapse of an Arkansas thrift.

The repercussions for the Treasury Department might even be severe enough to weaken Bentsen’s stature within the Administration, sources said, perhaps accelerating his long-rumored plans to retire within a year.

Moreover, the department’s fall from grace could raise new questions about the viability and direction of the Clinton agenda in the post-Whitewater period. The department has been at the core of the policy-making process on issues ranging from international trade and deficit reduction to health care and welfare reform.

Adding to the uncertainty over the Treasury Department’s future was the surprise decision of a three-judge panel Friday to replace Robert B. Fiske Jr. as Whitewater independent counsel with Kenneth W. Starr, who was the Justice Department’s solicitor general under President George Bush. Clinton White House officials were careful Sunday not to antagonize the new investigator.

“I think it’s a waste of taxpayers’ money,” White House Counsel Lloyd N. Cutler said on ABC-TV’s “This Week With David Brinkley,” “But I have every confidence in Starr, and I think that any fair-minded independent counsel is going to conclude that there’s not the slightest basis for any criminal charge.”

Panetta and Cutler both said they assumed Starr would “review” all of Fiske’s work but not necessarily re-investigate those portions of the case--including whether Treasury officials lied to Congress--that Fiske had closed.

However, Clinton’s lawyer in a sexual-harassment lawsuit called on Starr to step down from the case because of an appearance of “partisanship” against Clinton.

Robert S. Bennett said in a Washington Post interview that he had no personal doubts about Starr’s “intellect and integrity.” But he pointed to Starr’s recent comments opposing Clinton’s argument that he is immune as President from being sued by former Arkansas state employee Paula Corbin Jones and to news reports that Starr had planned to file a friend-of-the-court brief opposing Clinton’s position.

“I think Starr should decline (the appointment),” Bennett said. “I think there is a real appearance of unfairness. If Starr found anything wrong, I don’t think anybody could have any confidence in that.”

On the other hand, said Sen. Phil Gramm (R-Tex.), if Starr finds nothing wrong, his appointment could be a boon for the Administration because it would quell all speculation “that there was a whitewash on Whitewater.” Appearing on CBS-TV’s “Face the Nation,” Gramm renewed his call for the firing of Altman, Hanson and Joshua L. Steiner, Bentsen’s 28-year-old chief of staff.

For now, both Clinton and Bentsen are said to be committed to retaining Altman, whom they view as one of the most effective members of the Administration policy-making team. But Treasury officials concede that Altman’s government career hinges on whether Democratic congressional leaders make it clear to the Administration that they can continue to work with him.

Treasury officials say they believe that Altman--the central Administration figure in the Whitewater hearings--has been badly damaged by the fact that Democratic senators have joined Republicans in questioning his conduct.

“I think it will be tough for Roger, and I think the next week or two will be critical for him,” a senior Treasury official said. “The key will be whether Senate Democrats on the committees that Treasury has to deal with signal that, even though they think he screwed up on Whitewater, they can still work with him.”

In an effort to head off a congressional stampede for Altman’s ouster, Panetta has privately ordered senior White House staffers to stop talking to the news media about whether Altman can survive the controversy, sources said. Longtime friends, including Robert E. Rubin, White House assistant for economic policy, have been angered by leaks about Altman and are publicly taking up his cause.

“I’ve known Roger for 20 years; I’d vouch for Roger on absolutely anything,” Rubin said. “As the President has said, Roger has been an outstanding deputy secretary, and there’s no question in my mind he’ll continue to be so going forward.”

But some Treasury officials, embittered by reports of an imminent shake-up, contend that White House officials in charge of Whitewater damage control have been trying to deflect hostile fire toward the department by making Altman the fall guy.

While privately furious over the recent turn of events, Altman remains fiercely committed to remaining in office and clearing his name, according to sources close to him. “Public service is really important to him,” a senior Treasury official said. “And anyway, no one wants to be run out of town.”

Yet if the Whitewater hearings have been disastrous for Hanson and Altman, they have been just as damaging for the Treasury Department as a whole. In fact, some officials say they believe the congressional grilling subjected the department to disgrace.

The stain of Whitewater has spread across almost the entire top layer of management at the department. Along with Hanson and Altman, whose conflicting testimony seemed to underscore a deep rift within the department, Steiner had to endure painful, detailed questions about his most private thoughts, which he jotted down in a diary that has become a key piece of evidence in the hearings.

Bentsen, a former U.S. senator from Texas who has generally received kid-glove treatment on Capitol Hill, was forced to appear before his former colleagues to try to justify the department’s actions in the matter. Under surprisingly tough questioning, Bentsen distanced himself, insisting that he had no knowledge at the time of the department’s involvement in the Whitewater controversy.

And even after he completed his grueling testimony, Altman continued to be subjected to public denunciations. Last Friday, leading Republicans intensified their demands that Altman resign, and Democratic leaders offered no defense. “He should behave honorably and leave,” said Sen. Alfonse M. D’Amato (R-N.Y.), the ranking Republican on the Senate panel looking into Whitewater.

If he does not leave, D’Amato said, lawmakers “will be unable to rely upon any statement” that Altman makes to Congress. “Mr. Altman will have no credibility.”

Despite such attacks, Rubin insists that Altman and the rest of the Treasury Department’s senior staff have continued to work on the Clinton agenda without “missing a beat.” Treasury officials stress that the bitterly partisan personal attacks have not prevented them from collaborating with Congress on other matters.

Altman’s loss would be particularly troubling for the Administration. A former Wall Street investment banker and an old college friend of Clinton, Altman has been a leading player in crafting the White House health care agenda. Before Whitewater, he was regarded as an effective legislative deal-maker.

Perhaps his most important contribution has been to bring a more moderate approach to Clinton’s economic and social agendas. Early in the Administration, Altman played a central role in persuading Clinton to embrace an economic plan that emphasized deficit reduction over new spending. In debates concerning the Clinton health plan, he has acted as a counterweight to more activist aides such as health care adviser Ira Magaziner.

“The real tragedy is what’s happened to Roger--this is going to hurt his effectiveness for a long time,” said David Hale, chief economist at Kemper Financial Services in Chicago and an occasional adviser to the Administration.

Above all, outside analysts say they believe that the ouster of part or all of the top echelon at the Treasury Department could have a severe impact on the Administration’s economic policies, especially overseas.

Unlike some players on the Clinton foreign policy team, Treasury officials have received high marks from U.S. allies and trading partners. Bentsen, Altman and Lawrence Summers, undersecretary for international affairs, have helped reassert American influence--which waned during the Bush Administration--over the direction of international financial policies established by the Group of Seven industrialized nations. In addition, Altman and Summers have been at the center of the often acrimonious trade negotiations with Japan.

A purge at the Treasury Department could bring economic policy development to a screeching halt--at least temporarily.

“The rest of the world doesn’t understand Whitewater, so the scandal itself has had zero impact on the credibility of Treasury overseas,” said Allen Stoga, an international economist with the consulting firm of Kissinger Associates. “The impact will come, however, if the Treasury team is taken apart. That would increase the appearance of disarray in the Administration’s handling of economic and foreign affairs. This has been one of the best Treasury departments in terms of effectiveness in quite some time, and it has clearly been one of the best departments in this Administration.

“You could be talking about taking apart one of the best parts of this Administration.”