"This is a man who, in my view, is extremely bright, is extremely dedicated, is extremely political," says Tony Coelho, discussing Bill Clinton with the slightly contemptuous generosity most political handlers bring to describing the boss. "He has all the tools it takes to be extremely successful. But I think it's a question of understanding what the public wants. He came in understanding that he was running against Washington, that Washington was the problem. And what's happened is that he got trapped in Washington."

It is not the substance of this observation that startles, but the source. Speaking within days of the Democrats' stunning losses in the November election, the senior political adviser and former congressman is mouthing what has already become the conventional wisdom about why American voters so summarily rejected the president's party at the polls. But there is high irony in hearing this line of analysis from Tony Coelho.

For he is the very embodiment of the Washington culture that voters so resoundingly rejected. And nowhere was Clinton's imprisonment in the snares of the capital more apparent than in his reliance on Tony Coelho.

Coelho was appointed last August to be a temporary "senior adviser" to the Democratic National Committee, a high-profile post that made him, in effect, the party's chief. The 52-year-old former Democratic whip was in the enviable position of having a direct line to the White House, an unpaid post that allowed him to continue his lucrative new career as an investment banker, and a public status that marked him as one of the party's most highly valued strategists. Most important of all, the quasi-formal role offered official redemption to the once-disgraced Coelho, who had quit the House five years earlier in response to a personal financial scandal.

Come November 8th, Coelho partisans were quick to point out that no political operative, appointed just a few months before a midterm election, is in a position to determine the outcome of hundreds of congressional races.

But if he was not accountable for the Democrats' losses in the immediate terms by which political hacks keep score, he was, on a deeper level, an architect of the disaster -- perhaps the one man, besides Bill Clinton, on whom the party's failure is most justly pinned. For not only did he incarnate Clinton's hapless attachment to the idea that Washington insiders hold special wisdom and deserve special tribute; he was, in a very real sense, the man who had built the self-serving Democratic House of Representatives that was swept from power on Election Day.

Pundits and historians may wrangle for years about the final meaning of the 1994 election. Yet already it is clear that it represented the fall of the House of Coelho -- the end of an era in the life of the Democratic Party.

But not, ironically, the end of Tony Coelho, for whom the '94 campaign represented something of a resurgence. Indeed, Coelho may be the only Democrat in America who got what he wanted out of the midterm elections. While his party suffered its epic defeat, Coelho passed through the final cycle of the process by which the Washington culture launders the reputations of its disgraced children.

Los Angeles Times White House correspondent David Lauter describes it as a four-step ritual. "In the first stage, you're a pariah," he muses. "And in the second stage, you're a former pariah who's sort of allowed back into society but has this large scarlet letter stitched to your chest. Then you get into this third stage, where you can take the letter off, but you can't go into a position that requires Senate confirmation. And then if you're really good at it, you get to the fourth stage, where you're deemed to have been purified."

This may explain why Tony Coelho, even in the wake of cataclysmic defeat, wears an air of boundless optimism. I have hardly finished asking him how he feels about the Democrats' loss when --

" GREAT! " he says. "Basically, we've been freed, and let's get out there and stand up for what we believe in, and we'll show what the difference is, and come back in '96."

He turns to a parable often cited by his fellow Californian, Ronald Reagan. "You've got to keep looking for that pony when you see a lot of straw," he exhorts. "People accuse me all the time of having my glass half full," he adds. "Well, maybe that's why I'm a success."

WASHINGTON IS commonly said to be an unforgiving city, bent on the destruction of any man or woman who slips up in the course of public service. And it's true that the capital has a gleeful obsession with small mistakes: the gaffe, the blunder, the ethical lapse; the spousal freebie, the doubled-billed expense, the personal use of a public plane. But the big errors, the mortal sins, the ones that actually leave a lasting mark -- these often don't count. The big mistakes, if they are massive enough, and if they unfold slowly enough, and if they are accomplished by people who can boast of short-term achievements, may pass unnoticed in a culture that has no capacity for long-term memory.

Tony Coelho is, among other things, just one more piece of evidence that in Washington you can be a "player," a "winner," even a "wise man," despite a history of destructively poor choices.

Coelho spent 25 years in the House -- 13 years as an aide to his home-town congressman from California's Central Valley, and 12 as the congressman's successor. He occupied his highest rank, as Democratic whip, during his final term in the House. But it was his service, from 1981 through 1986, as chairman of the Democratic Congressional Campaign Committee that made him, for a time, the most influential young congressman of his generation.

Ronald Reagan's first landslide had just snatched the White House and the Senate from Democratic control; it was a political commonplace, at the time, that the House would be the next to fall in this overwhelming realignment. The chairman of the DCCC had been one of the losers in the 1980 election; the barons of the House saw little to lose in assigning the job to the green but gung-ho Coelho.

"The D-triple-C" was a sleepy little shop that held one fund-raising dinner every year and automatically sent small contributions to incumbent members. But Coelho shrewdly understood its potential. In his first four years, he more than quintupled its fund-raising and made it an aggressive instrument to solidify Democratic control of the House. For the first time the committee had its own field staff, its own opposition research and polling; for the first time, Coelho withheld money from safe incumbents in order to give to challengers who had plausible shots at taking down Republican members. In the process, Coelho modernized the party's understanding of how to combat Reagan's telegenic appeal, and gave his fellow Democrats a new faith that the GOP juggernaut wasn't unbeatable. "If you go back to '81, '82," recalls Democratic pollster Peter Hart, "everything seemed to flow from Tony."

The positive way of summarizing what Coelho accomplished is to say that he placed a limit on the GOP realignment, preserving the House as a seat of Democratic resistance to Reagan's realignment all through the '80s. Less generous accounts conclude that Coelho sold the party's soul in the process, by vastly expanding the contributions of business political action committees -- and the expectations those contributors felt in return. By 1985, Robert Kuttner described him in the New Republic as "the Democrats' Dr. Faustus" and "the Milo Minderbinder of the Democratic Party, with something to sell to just about everybody."

The crux of Coelho's appeal to businessmen was the unsubtle reminder that Democrats already controlled the House. He went to business and said, in effect, "You might not like us, but we've got our hands on the levers right now; you have to give to us."

Former DCCC staffer Thomas R. Nides, who joined the Clinton administration as chief of staff to U.S. Trade Representative Mickey Kantor, summarizes Coelho's attitude with a perhaps unconscious candor, saying Coelho felt that "if a member deserved business support, that there's no reason just because they happen to be a Democrat that they shouldn't receive it."

"He was the mastermind of the candidates' appeal ... to the corporate world, through their business PAC s," says Ellen Miller, executive director of the Center for Responsive Politics, a political reform group. "What that has meant, pretty clearly, is a kind of stifling of what had been the predictable Democratic response on a whole host of issues."

Under Coelho, the DCCC for the first time began accepting "soft money," donations that are raised and used in ways that get around federal giving limits. Basically, these "party-building" funds -- used for everything from voter-turnout programs to office overhead -- are a back-door means of getting contributions from wealthy interests that are willing to spend more than they are allowed under federal ceilings; it's also the only way that corporations can make direct political donations. He also started the "Speaker's Club," which offered business PAC s, for a contribution of $15,000, the chance to "serve as trusted, informal advisers to the Democratic Members of Congress."

This was, in short, access-peddling. Republicans had pioneered many of these tactics, but for them, cozying up to business posed no conflict with the party's ideology; for Democrats, on the other hand, reliance on business money challenged the party's basic identity. For the first time, Coelho had explicitly severed the connection between the party's goals and the sources of its funding.

In Washington, a conversation about political money is conducted in cliches. It is a conversation dominated by pragmatists like Coelho, who say that political contributions are just a means to an end; that you have to play by the rules that are on the ground, whether you like them or not; that you can't unilaterally disarm while your opponent is socking away PAC money. All these claims have a limited truth. But what changed during the '80s was that the House Democrats, with Coelho leading their charge, upset the delicate balance between means and ends: Incumbency became not only the means of furthering Democrats' favored policy goals, but an end in itself.

So proud was Coelho of his achievements that he allowed Brooks Jackson, then a Wall Street Journal reporter, to follow him around for the entire election cycle of 1986. It was, observes a Democratic lobbyist, "the dumbest thing Tony ever did." For the result was the book HONEST GRAFT: Big Money and the American Political Process, a guided tour of a modern political machine at work.

In it, we see Coelho shaking down recalcitrant PAC s with thinly veiled threats about how their "good relationships" with House Democrats might be "damaged" if they didn't come through for a particular candidate he was backing.

We see him fighting the 1986 tax reform bill on behalf of some of the wealthy people and industries who benefited from the most egregious loopholes the reform bill was meant to close: dealers in real estate tax shelters, independent oil and gas drillers, the wealthy Gallo wine family, who were constituents in his district as well as heavy contributors to the DCCC, and whom he helped to avoid inheritance tax on $104 million of their fortune.

We see him taking in $95,000 in soft money in one election cycle from Jackie Presser's Teamsters Union, then trying to help Presser, under indictment for embezzling from the union, avoid an anti-racketeering suit by the Reagan Justice Department.

We see him wrapping his colleagues even further in the contributors' embrace by steering financially strapped members to industry and labor groups that offered them speaking fees and free vacations.

We see him helping to kill a campaign finance reform measure that would have limited PAC spending and required full disclosure of soft money.

Most damningly, Jackson and other reporters also exposed Coelho as he stepped blindly into bed with the savings and loan industry. He appointed as the DCCC finance cochairman one Dallas multimillionaire, Thomas Gaubert, who was eventually convicted of S&L fraud and barred from the Texas thrift business by federal regulators. Another major DCCC donor was Donald Dixon, later convicted of looting Texas's Vernon Savings & Loan, which ultimately cost U.S. taxpayers $1.3 billion. Coelho was given the use of Vernon corporate aircraft and a luxury yacht, the High Spirits, for travel and party fund-raising; when this was reported, he was forced to reimburse almost $50,000 -- more than half of it from his personal campaign committee -- to Vernon, which was by then run by federally appointed conservators. Speaker of the House Jim Wright tried to intercede with federal regulators on behalf of both Gaubert and Dixon -- in the latter case, at Coelho's direct urging. And in 1987, Coelho also helped S&L owners by scaling back a bill authorizing funds that bank regulators desperately needed to stay on top of the exploding crisis.

The S&L bailout, which ultimately cost taxpayers more than $200 billion, was a spectacular failure of public policy in which both political parties and several government agencies were complicit. Among Democrats the better part of the blame rests with the leaders of the House of Representatives in the '80s, and Coelho is entitled to a large portion of that.

This reckoning was still years away when Coelho was elected, in December 1986, to the No. 3 slot in the House leadership, as Democratic whip. It was the first time whip was an elective, rather than an appointive, position, and Coelho called in the many chits he had earned in showering money on his colleagues.

Coelho had risen so far and so fast almost exclusively on his affinity for politics. He was a stickler for constituent service, and worked hard for the big agriculture interests in his district; his colleagues also valued him as a sharp legislative tactician. But beyond a commitment to expanding the rights of the disabled and a generally liberal outlook on social programs, Coelho wasn't widely identified with a policy agenda. "Tony wasn't really interested in the substance of issues," says former Oklahoma congressman Mike Synar. "He was good at 'em, but that wasn't his forte, that's not where he wanted to make his mark."

COELHO IS A SMALL MAN, and slight, but he carries himself like a big guy -- the effect, perhaps, of having spent a quarter-century of his professional life in the orbit of men like Dan Rostenkowski and Tip O'Neill. He is a man of great and sunny energy, who gets only a few hours of sleep each night and jokes about the daily doses of phenobarbital he takes to manage the epilepsy he has had since he was a teenager. "My staff," he told me brightly, "always comments, what would I be like if I weren't taking downers every day?" He was the first in his family to go to college, powered by an ambition that carried him far from the failed dairy farm of his parents, second-generation immigrants from the Azores. Yet he is not one of those public men in whom you imagine a hidden richness that belongs to the private man alone. With Coelho, it all goes into his work, into a life of driving effort and shiny surfaces.

His political method is an incessant networking: getting others to like him, or better yet, to need him. He has a vast, seamless web of "friends" -- political connections, financial associates, former staffers, family acquaintances, charitable contacts. Today he maintains a computer Rolodex of 4,361 names; he holds a reunion, every other year, for former members of his staff, right down to people who once worked for him as interns and pages. One advantage of his method is the armor it provides: "I don't know anybody who really despises Tony Coelho, on a personal level. I don't know anyone who thinks this is an evil man," says Brooks Jackson, who is now a reporter for CNN. "There are liberals who think he's sold his party's soul; there are conservatives who are upset because he beat them all the time. But on a personal level, he always kind of reminded me of Hubert Humphrey: that he's a likable guy. That was kind of Coelho's stock in trade -- that he was a world-class guy at making people like him."

Another function of Coelho's method -- knowing people, putting them together, obligating them to him -- is that it stands in place of his having to believe anything in particular. After just five terms in Congress, he was near the top of the hierarchy; it was often said that Coelho would be speaker one day -- if he could muster the patience to wait out those ahead of him in line. But in 1989, as the House was traumatized by a series of ethics investigations that eventually unhorsed Speaker Wright, Coelho too came under scrutiny. And in keeping with Washington's strange hierarchy of sin, he was called to account not for the web of corruption he had cast over his colleagues, but for smaller, more technical transgressions. Three years earlier, Coelho had accepted a $50,000 loan from Thomas Spiegel, the head of California's high-flying Columbia Savings & Loan Association, to help him buy a $100,000 junk bond sold through Michael Milken's Drexel Burnham Lambert. (Milken too was a major Coelho backer.) Not only had Coelho failed to report the loan on his disclosure forms; Spiegel had held the bond until Coelho could arrange the rest of the financing, and Coelho had ultimately paid only the face value of the bond, pocketing for free the $4,000 or so it had appreciated while Spiegel held it. Coelho explained most of the problem as a failure on his accountant's part, but given the gathering public awareness of the S&L scandal, his connection to Spiegel couldn't be shrugged off. Furthermore, the bond purchase itself, first reported by The Washington Post's Charles R. Babcock, had the air of a sweetheart deal, for it was part of a hot offering that wasn't normally available to individual investors; some of Milken's most powerful customers were unable to get in on the action.

For Coelho, it was part of a larger pattern of risk, of playing a bit too close to the outer edge of the rules. He was also criticized by Republicans for his investment, in the mid-'80s, in a California firm that marketed computer software for dairy farmers. As chairman of a House subcommittee that dealt in dairy programs -- including elements of a huge 1985 farm bill -- Coelho was at least theoretically in a position to benefit his own business.

(Had he stayed in Congress, he also would have faced a major political problem three years later, after the House Bank scandal erupted. Coelho was revealed, in 1992, to be on a House ethics committee list of 22 "top abusers" of the bank. He had been a member for only 12 of the 39 months the committee studied, and in every one of those months overdrew his account, by 316 checks totaling $292,603 -- effectively giving himself interest-free loans at his colleagues' expense.)

Whereas Wright was still clinging to his office by his fingernails, Coelho understood perfectly how the scandal would unfold: the long, drawn-out investigation by the House ethics committee that would ensue; the drip, drip, drip of leaks from the inquiry opened by the Justice Department. And, according Terence McAuliffe, formerly Coelho's finance director at the DCCC, he was concerned that broader investigations would ensue: "With the tide turned, getting as ugly as it was -- were they going to go back and look at every donor who had ever given to the Democratic Congressional Campaign Committee?"

"Tony is a winner above all," says Rochelle Dornatt, who was one of his floor assistants. "And when he got to the point where the cards were stacked against him, and he knew he couldn't win, he changed the game." So Coelho jumped without being pushed, earning the undying gratitude of his shellshocked fellow Democrats, and admiring reviews from many of the reporters who had covered his career.

But his impact on the House would continue, for the party Tony Coelho had built was a mirror of Tony Coelho. Modern and energetic, infinitely accommodating and superficially state of the art, it was, in a deep sense, a party without moorings.

Coelho had seen to it that the Democrats held on to the House as their one bulwark in Washington. For the next decade, the Democratic House became the party's center of gravity; and from behind the ramparts built with Coelho's money, the House Democrats were able to avoid the painful reckoning that Reagan's vast popularity should have wrung from the opposition party. They retained those parts of their base that couldn't possibly join the Republicans -- African Americans, the poor, the determinedly liberal -- and broadened their appeal, through Coelho's machine, to a pragmatic business class. For a long time, they would be able to paper over the fact that they hadn't a clue about how to address the realities in between -- especially the economic issues that galvanize the traditionally Democratic middle class, whose silent disaffection would only increase as the '80s became the '90s.

COELHO WAS WAY too smart to hang around Washington, hat in hand, lobbying his former colleagues. The only way to cleanse himself was to change venue entirely for a time, so he turned his sights to Wall Street. He joined Wertheim Schroder & Co., a mid-sized, very Republican investment banking firm, where he became head of the asset management division -- the department that invests large pools of money for such clients as unions, state governments and private pension funds; it's the sort of banking for which you need about $2 million just to get in the door.

Many in the firm, where his hiring was not immediately popular, were amazed at how quickly he caught on. But as Rep. Steny Hoyer (D-Md.) points out, "He chose, obviously, his strength, which is raising capital." His new associates are all quick to say that Coelho is valued for his management skills too. But his connections were clearly paramount. Wertheim hired Coelho "for his brains and his drive," says President and CEO Steven Kotler. "And, of course, the relationships he made over two decades in politics."

In 1989, the asset management division was in desperate trouble. Despite the bull market of the '80s, its investments had done poorly; its assets under management had fallen by about two-thirds, down to $700 million. But by the end of 1994, at Coelho's five-year anniversary, they had topped $4 billion; at least half of the gain, a colleague says, was attributable to Coelho. What his presence did, explains William Smethurst, chairman of Coelho's division, was enable the bank to shorten its recovery: "When you've been through a bad patch, large clients -- especially in the large pension fund area -- they want to watch you for three or four years to make sure the improvement can be sustained ... But with Tony, as long as we could demonstrate that we were credible, he was able to compress the time frame." Wertheim's new investors included many of his old contacts in labor, and several of his longtime allies in business: E&J Gallo Winery, for example, entrusted $19 million to Wertheim's care.

While Coelho didn't work as a lobbyist, his Washington connections made him a formidable door opener for Wertheim and its friends. For example, Wertheim decided to try for new business by cosponsoring, with Variety, an annual "Business of Entertainment" conference. "It's very difficult to start up something like this," notes Davia B. Temin, Wertheim's marketing director; it was much easier to draw participants to the first conference after Coelho got House Majority Leader Richard Gephardt to speak.

Coelho also serves on the boards of five companies, including cable giant TCI, the Nevada casino company Circus Circus Enterprises and Service Corporation International, a huge chain of funeral homes and cemeteries. Still, for all Coelho's success in New York, it was clear to anyone who knew him well that he was eager for at least an important part-time role in Washington. If you are an insider who has wandered outside and wishes to go back inside, here is what you do:

You keep in touch, dropping in on former colleagues' fund-raisers while in town -- not so much that you look hungry, just enough to keep your name on people's lips, create a few chits. You talk a lot to your old allies in the House, then make yourself available to reporters who still value you as a source in finding out what's happening on Capitol Hill.

You dispense advice, which is now held to be tempered by the "perspective" you have gained from leaving Washington. You encourage old colleagues in the House to think of you as someone to whom they can turn for advice on how to deal with the political consequences of a tough vote, or how to structure their fund-raising, or how to earn millions when they too leave Congress. You direct your advice to both sides of the aisle; it's especially helpful if a champion schmoozer like George Bush occupies the White House. "Bush and I were always good friends," Coelho says, explaining that Bush's first chief of staff, former New Hampshire governor John Sununu, often sought his advice. "After he got in, he would call me and say, 'Look, I don't know this town ... What do you think?' "

You partake of respectable, vaguely bipartisan public-policy causes, as when Coelho signed on to the Committee for Peace and Security in the Gulf, a volunteer committee founded in 1990 to support Bush policy in the Persian Gulf.

You say things like, "I have a sense of obligation to the process."

You rush to the defense of the president's wife (a trail blazed in the era of Reagan, when Nancy Reagan, with her designer-dress scandals and expensive dishes, was constantly offering occasions for opportunistic chivalry). Coelho's chance came early last year, when the story of Hillary Clinton's commodities trading broke. "If a man would have done that, we'd be saying he's smart," Coelho told the Washington Times. "Hillary is a symbol, and symbols are the ones that get beat up the most." He publicly advised a group of Hillary defenders, calling themselves the Back-to-Business Committee, on such matters as placing supportive ads in the New York Times.

You work your former staff, the cadre of loyal young men and women who have now gotten to positions of some importance. When Clinton got elected, these seedlings Coelho had planted over the years bloomed in the persons of former spokesman David Dreyer, who became an influential aide in the White House communications office; Rahm Emanuel, deputy director of communications; Marcia Hale, who was first Clinton's scheduler and then the director of intergovernmental affairs; and Tom Nides, who began the administration as chief of staff to U.S. Trade Representative Mickey Kantor. In addition, Coelho had a good relationship with senior adviser George Stephanopoulos, dating back to the younger man's days as a Capitol Hill staffer. "I think a number of us were pushing, pushing," says Emanuel. "First it started with a number of us calling him. Second, we would say, 'Tony suggested this' -- in a meeting, or whatever. It just blossomed."

You send a check to the president's legal defense fund and, for good measure, volunteer ostentatiously to raise money for it if anyone asks you. (In the end, Coelho says, "I was never asked" -- perhaps because the trust administering the fund has learned that legally it cannot solicit funds. But last July, he was telling Legal Times that "I'm willing to be a major player.")

You see to it that your name is floated for jobs, as Coelho's was, beginning as early as the spring of 1993, for everything from White House deputy chief of staff to Democratic National Committee chairman. David Lauter notes that this "serves both the function of gauging how much resistance there is, and also the function of -- it's like desensitization shots that people take for allergies. After repeated exposure, you no longer sneeze when you see the name." And you make sure, through intermediaries, that all of this is being registered in the public eye. In particular, savvy Coelho-watchers noted a raft of stories about a year into Clinton's presidency that described Coelho as an adviser of rising importance to the White House -- and that noted, in passing, that Coelho had received a letter from the Justice Department announcing the close of an investigation that most newspaper readers hadn't even realized was going on. "That sent a signal to the people who did know that the whole junk bond deal was not going to result in any charges," says Brooks Jackson. "You don't go around telling people 'I'm not going to be indicted' if you don't have some pretty strong ambitions."

Gradually, through all these means, Coelho became one of a core of "outsiders" to whom the Clinton White House turned for advice. (When White House staffers speak of seeking advice from outsiders, they really mean they're talking to insiders who just happen to work outside the building.) Beginning with the passage of Clinton's first budget, and continuing with the tough congressional battle over the North American Free Trade Agreement, Coelho was a quiet counselor to his former staff members, and then, through them, to more senior officials. Chief of Staff Thomas F. "Mack" McClarty, as a newcomer to Washington, was an especially receptive target for his expertise.

When Leon Panetta became chief of staff last summer, Coelho's influence was clinched: Panetta had also been a congressman from the Central Valley, and the two men had been close political friends for years. Soon Panetta moved to formalize Coelho's role, naming him on August 9 as "senior adviser" to the Democratic National Committee through the fall campaign.

In reality, it was a White House political appointment: Coelho got through the entire campaign without setting foot in DNC headquarters on Capitol Hill. His chief roles were to come to Washington at the end of the week and, in Thursday evening and Friday meetings, consult with the president's political staff on matters of "message" and strategy; and to serve as a party spokesman on television, projecting a more mature and combative persona than Clinton's youthful staff had been able to achieve.

The appointment was, in addition, a way to test Coelho's passage through the Four Stages of Redemption; in Steny Hoyer's words, "to see what residuals there were from the '89 resignation." By giving him an official title, the White House would find out how much fire Coelho was likely to draw; but by making it a DNC appointment, Panetta ensured that any squawking over ethics couldn't harm the president too much. But in any case, Coelho drew very little fire; only a few critics in the liberal advocacy community complained about his new title. As Chuck Lewis, executive director of the Center for Public Integrity, observed with a sigh, "No one seems to mind, except a few of us yammering naysayers."

It was a powerful illustration of Washington's unspoken statute of limitations, the promise of amnesia that Coelho won by slipping out of Congress so gracefully when his troubles came. But in order for the Clinton administration to take Coelho in, it had to sign on to a series of fictions.

The first was that he had nothing to gain by being anointed a White House insider. "Obviously, Tony really didn't have any agenda beyond being helpful," says Coelho acolyte Tom Nides. "It wasn't like he was looking for a government job; it wasn't like he was doing business in this town."

Republican Congressman Frank Wolf tried to pierce this fiction in a letter to Panetta, charging that "Mr. Coelho's financial, legal and business ties to unions, corporations, pension funds and the like, make his access to the White House and involvement in personnel and policy matters ... an area ripe with potential conflicts" -- especially given the fact that he wasn't required to disclose any of his private clients.

New York Times reporter Stephen Engelberg, in one of the few skeptical newspaper stories about Coelho's new life, documented one of the ways that Coelho had offered his influence as an informal adviser to benefit friends in business. In 1993, the chemical giant Monsanto sought Coelho's help in persuading the Agriculture Department and the Office of Management and Budget to duck a congressional request for a study that might slow down approval of a new genetically engineered hormone to increase milk production in cows. Coelho called a former aide who had gone to work for then-Secretary of Agriculture Mike Espy -- a former congressman in whose career Coelho had been very influential, helping elect him to Congress in 1986, talking him up for the Cabinet post in 1992, and then helping him to choose his senior staff. Ultimately, with OMB's blessing, Congress approved production of the hormone.

Gaining an official title could only serve to increase Coelho's influence within the government. Yet he and the White House maintained the merry fiction that because Coelho wasn't on the federal payroll, he couldn't benefit from having a close, well-advertised association with the president of the United States.

The second fiction was that Coelho had been fully exonerated after his departure from Congress in 1989. "I think the sense was that it had been fully investigated and disposed of," says George Stephanopoulos. Chuck Lewis counters, "He wasn't exonerated; he just wasn't prosecuted. It's a big difference. There's this great Meese-ian notion of ethics, that if you're not indicted, you're an Eagle Scout."

In fact, Justice's 1992 letter informed Coelho simply that it had "closed its investigation" of the bond deal; and the House ethics committee never fully aired the matter, because it dropped its investigation when Coelho quit Congress.

Finally, the Clinton administration sold itself on the fiction -- more precisely, the legalism -- that Coelho's fall from grace was an isolated incident. In fact, Coelho's fall had everything to do with the manner of his rise. And even though the specifics of his foray into junk bonds did not result in criminal sanctions, they might reasonably have caused Clinton to take a second look at the circumstances of that rise, bearing in mind journalist Michael Kinsley's law: that in Washington, the real scandal lies not in the illegal acts people commit, but in what they can do legally.

But Clinton had long since embraced Washington's view that "ethics" is a legal term, and that the only things that matter are the short term, the narrow event. The story of Coelho's rehabilitation is, finally, the tale of how a new young president, on confronting the ancient rites of the capital, went native.

CLINTON HAD, of course, run for president against exactly the politics-as-usual tradition that Coelho exemplified. In his 1992 speech accepting the Democratic nomination, he railed that government had been "hijacked by privileged, private interests" and promised to "break the stranglehold the special interests have on our elections and the lobbyists have on our government."

Yet from the start, Clinton showed a perfect willingness to do business with the existing power structure. By using men like Washington lawyer Vernon Jordan on his transition team, he signaled that he would not challenge the prerogatives of those who had gotten to Washington before him. And once he was in office, his signals were self-contradictory: Even as he talked of changing the way the capital did business, he sought out men like Lloyd Bentsen and Warren Christopher to bring Washington-style respectability to his Cabinet. To chair the DNC, he appointed campaign director David Wilhelm, who once worked for the reformist lobbying group Citizens for Tax Justice, and who promised to return the party's fund-raising base to the small donor; at the same time, Clinton raced to exploit the new advantage that gaining the White House gave the Democrats in raising soft money. In the 18 months after his election, the DNC raised almost $27 million in soft money, twice what it had raised in a like period during the Bush administration; over half the money was from business.

As time went on, Clinton staffers solicited a close relationship with the lawyers and lobbyists of K Street, bringing them in for regular meetings, making them a part of his legislative strategy in hard-fought battles on the Hill.

Despite these overtures, whenever the president made a political error, he was subject to a constant chorus of criticism that he didn't understand how Washington worked; that his administration lacked "serious players." And Clinton seemed weirdly willing to accept the idea that there was some transcendent quality of Washington savviness his operation lacked. He responded by hiring as temporary advisers a series of men who knew the secret handshake, propitiation to the Gods of Insider Wisdom.

First came the appointment of Republican David Gergen, in May 1993, as counsel to the president. Then came the hiring of superlawyer Lloyd Cutler as counsel, in an effort to salve Clinton's Whitewater wounds. Coelho was just one more in the series, brought in to stifle congressional Democrats' crisis of confidence in the White House political operation. House Democrats reacted predictably. Says Massachusetts Rep. Barney Frank, "My reaction to Tony being there was, 'Hey, great, the adults are back.' "

Up to a point, one can understand Clinton's inclination to play along with the conventions of a theater that he did not invent. For the press corps tends to promote this game, treating appointments like these as substantive signs of presidential sagacity. As one of Clinton's more centrist, "New Democrat" advisers comments, "Sometimes things get to the point where the only way you can quiet Washington insiders is to give them something to get them off your backs, even if it isn't something real."

Moreover, some practical lessons can be learned from insiders about how not to ruffle feathers unnecessarily -- lessons Jimmy Carter, for example, ignored at great cost. But Clinton characteristically aspires to ruffle no feathers at all, and in trying so hard not to make Carter's mistake, he ended up fighting the last war.

From the start, the Clinton administration faced a choice between playing the careful coalition politics of the congressional leadership, especially the House leadership, or the more daring politics the president had articulated during the 1992 campaign, by which he would try to take directly to the people a series of appeals to common interests that might cut across traditional political lines. And from the start, in almost every instance, Clinton chose to play the game as the congressional leadership wanted it played.

The truth was, the administration was packed with young (in many cases, Coelho-trained) staffers suckled on the congressional creed of gradualism and "realism" and inflexible interest-group politics. In its effort to "put some points on the board," as a White House official puts it, the White House bowed to the fact that the Democrats' center of gravity still lay with the House leadership. Instead of trying to shift that center, or create a new one, it relegated initiatives like campaign finance reform -- anathema to House Democrats, in particular -- and welfare reform to the end of the line. This strategy enabled Clinton to pass a good deal of legislation, for which he probably got insufficient credit. But it also identified him, in the public mind, with the most loathed body in American politics.

"We would be better off -- even if we hadn't passed some of those reforms -- if we had pushed really hard for them," says a White House aide. "Congress is the most unpopular institution in America, and we ended up tied to them."

Of course, House Democrats will tell you that it is Clinton who dragged them down. But the truth is more complicated. Locked in their desperate embrace, Clinton and the Congress had a sort of mutually amplifying effect, like a poorly married couple who, whenever they go out in public, bring out the very worst in each other. Coelho was a good enough politician to understand some of what Clinton was up against in November; he was willing, from his new perch, to give advice that ran against the wishes of his old colleagues in the House. According to several White House sources, for example, he was among those who urged in late summer -- unsuccessfully, and probably too late -- that the president push hard on some sort of reform legislation to create a centerpiece in the fall campaign.

But when it came to the final weeks of campaign strategy, Coelho was among those who favored some of the creakiest, most familiar weapons in the Democratic arsenal. He scoffed at Newt Gingrich's canny "Contract With America," rejoicing that Gingrich had handed the Democrats a weapon -- not because he saw it as a chance for Clinton to articulate an alternative vision, but because it offered a target in making narrow appeals to various Democratic interest groups. Use it with senior citizens, he urged Clinton, to charge that Republicans had a secret plan to gut Social Security; use it in Iowa, to buy off farmers by assuring them that farm subsidies were safer in Democratic than in Republican hands. It was way too late for any such tactics to make a difference. Really, even if Tony Coelho's advice had been pure genius, and even if he had had a larger role, for longer than three months, he couldn't have bailed his party out: He did far too good a job, a decade ago, creating the Maginot Line that he and his colleagues in the Clinton White House were now desperately trying to hold, even as the more imaginative enemy swarmed around it.

WHEN HE TALKS of his life, his past and his future plans, Tony Coelho exudes the salesman's total conviction. Now, a scant week after the election, he is selling a new set of goods. "I didn't have really any input until recently," Coelho says, explaining his total lack of involvement in the Clinton administration's many errors. "I did not know the president. People have a hard time understanding that I did not know these people; I did not. The more I've gotten to know them, the more I like and respect them, but my first lengthy conversation with the president was in, I think, December" of 1993.

Listen to Coelho, who pauses only to shoot his army's wounded on his way off the field: This is the unsentimental insider at work, in one of those moments when reality shifts and a new reality must be accommodated. It's not Tony Coelho who will pay for his party's mistakes.

True, he may have to revise what was, until November, his clear ambition to run President Clinton's reelection campaign. A loss like the midterm election is precisely the sort of measurable event that Washington does keep track of, and for which it does mete out punishment; so Coelho has been assigned a certain amount of short-term blame for the defeat. And without his old comrades at the helm in the House, he's not quite the valuable political commodity he seemed just a few months ago.

But then again, it may be the better part of shrewdness to duck a high-profile role in Clinton's next campaign, which is shaping up as a torturous undertaking. Coelho still has a powerful ally in Leon Panetta; and he has entirely escaped the sort of long-term reassessment that might identify his true culpability in the fortunes of his party. He can simply remain, for the time being, one of the White House's outside insiders, and if he plays his cards right, he'll be holding a good hand 2 and 6 and 10 years from now.

After all, your true insider is a bipartisan sort of fellow. "I love Bob Dole!" Coelho tells me. "I have great friends on the Republican side ... {GOP lobbyist} Jim Lake and I are as close as brothers!" As for the new House speaker, well, it seems Tony Coelho was the guy who arranged an introduction between Newt Gingrich and Frank Luntz, the young pollster who helped Gingrich assemble the elements of his Contract With America.

Tony Coelho is in this for the long, long game. Some day, when he's ready to go to pasture, he'd like to seize the final prize that awaits any insider of good repute: the ambassadorship to the country of choice -- in Coelho's case, to Portugal. And he's made a giant step toward that goal.

The Democratic Party may have a terminal disease, but you'll notice that when Tony Coelho's name comes up, no one even sneezes.

Marjorie Williams is a contributing editor at Vanity Fair.

CAPTION: POWER TRIP Top row: Tony Coelho in 1977, as a Hill aide; with DNC Chairman Paul Kirk in November 1986; as newly elected House whip with Rep. Jim Wright in late 1986. Middle row: With Sens. George Mitchell and Joseph Biden in 1986; with then-Sen. Albert Gore, and announcing his resignation from Congress in 1989. Bottom row: In July 1994, with Vice President Gore and President and Mrs. Clinton, acknowledging applause for his role in shaping the Americans With Disabilities Act; working the phones as a New York banker en route to the shuttle; back in the game as a party spokesman on "Face the Nation" in October 1994.

CAPTION: Tony Coelho, with Sens. George Mitchell and Joe Biden, in happier Democratic times.