President Carter said today he did not know the full extent of Bert Lance's financial manipulations when he chose his close friend to head the government's most powerful fiscal office.
Carter, speaking with reporters during a political swing through New Jersey, said he was aware of only one Lance financial difficulty before nominating him for budget director.
"The only thing I knew was that he had a problem in the 1974 campaign [for governor of Georgia], and it had been resolved," the President said.
Asked if he knew of other difficulties, Carter said, "No, I didn't."
Meanwhile, Senate Majority Leader Robert C. Byrd (D-W. Va.) said the embattled Lance should resign after he testifies before a Senate committee Thursday because his "effectiveness has been destroyed."
"The cloud of suspicion is continuing to broaden and it will not be possible for him to regain his credibility," Byrd told a press conference in Washington. "It is inevitable he will resign."
Carter campaigning here for New Jersey Gov. Brendan T. Byrne, reacted with surprising mildness to Byrd's call for Lance's resignation.
"Obviously, I respect the opinions of [WORDS ILLEGIBLE] senator emphasized his belief that Bert Lance should have a chance to explain his side of the allegations."
Carter, making his first campaign trip since becoming President, brushed away further questions about Lance's financial manipulations. He said he intends to hold a televised press conference on the matter Wednesday, the day before Lance is to go before the Senate Governmental Affairs Committee to defend himself against charges of financial irregularities in his private and business life.
The committee's ranking Republican and Democrat called for Lance to resign a week ago.
But all last week the White House maintained that the former Georgia bank president should have a chance for his day in court before the Senate panel.
Carter has steadfastly defended his friend and tennis partner, calling him a "man of complete integrity" who enjoys "my complete confidence and support" after the release of a report last month by the comptroller of the currency.
The 1974 campaign problem Carter mentioned today was a reference to Lance's unsuccessful try for governor in the Georgia Democratic primary that year. Lance financial much of the campaign with bank loans and to this day remains heavily in debt with those loans.
The matter had not been resolved - as Carter suggested today - when the President-elect named Lance as his choice for budget director on Dec. 3. In fact, Lance was busily refinancing at least $390,000 in old campaign debts almost up to the time he was sworn in on Jan. 23. At about that time, a political fund-raising committee was re-established to solicit contributions to the Bert Lance for Governor Committee.
Carter's statement today that he did not know of any other Lance financial problems contradicted congressional testimony last week by Robert Bloom, acting comptroller of the currency when Lance was confirmed as budget director. Bloom held Carter or his associates responsible for withholding details of Lance's past difficulties from the Senate committee that confirmed Lance.
Bloom, who has been accused of glossing over Lance's past problems, said he "believed at all times" that the President-elect and his aides "were aware of the most serious problems known to me at that time in connection with Mr. Lance's banking background."
The Lance affair, simmering for months, has quickly moved to a head in recent weeks and almost daily reports of irregularities at both Lance's Calhoun First National Bank and the National Bank of Georgia in Atlanta, of which Lance became president in 1975.
While many of the issues in the case are complicated banking transactions, one of the things creating the most attention has been the relatively simple problem of overdrawn checking accounts by Lance and his family at banks they control. At times, their accounts were overdrawn by as much as $400,000.
The Lances paid interest on the overdrafts after 1974, but bank examiners view such overdrafts as loans. Under federal law, bankers are severely limited in the amount they can borrow from their own banks. The Office of the Comptroller of the Currency became so alarmed over the overdrafts it imposed a cease-and-desist agreement on Lance's Calboun, Ga., bank in December, 1975. The Justice Department also investigated whether overdrafts by Lance's 1974 campaign committee violated campaign laws.
But both the comptroller's sanctions and the Justice Department probes were dropped after Carter appointed Lance budget director, one of the most powerful positions in government.
A two-inch-thick report of an Internal Revenue Service investigation of Lance released late Friday indicates that the disciplinary order against his Calhoun bank disappeared after Lance said he "mentioned" it in a "courtesy call" on a federal bank regulator in November.
Lance, according to an affidavit in the report, told Donald Tarleton, a federal bank official, that he "had been asked by President-elect Carter to serve in his administration" as OMB director.
Tarleton called in a lawyer after Lance left and asked "what OMB was all about," according to another affidavit in the report, and a few hours later rescinded the order.
Lance has also come under fire on several other fronts. The Washington Post reported yesterday, for example, that a Beechcraft King Air 200 plane used by Lance while he ran the two Georgia banks changed hands in two unusual transactions now under study by the criminal fraud section of the Justice Department.
Lance is said to have used the aircraft hundreds of times for his personal use, which some sources believe may prove to be one of the most damaging elements in the case.