Once, he was the second most powerful figure in the Pentagon, a former combat pilot and savvy industrialist, who first became deputy secretary of defense and then a federal inmate.

But even though the fall from grace to a Texas jail cell has been a long tumble for Paul Thayer, he says in a recent letter that prison life is "not all that bad" and that some of his fellow inmates -- "not one of my favorite words" -- are talented enough to "successfully manage any one of a dozen large business operations on the outside."

"I know you may completely break up laughing, but I should tell you I'm assigned to the law library," Thayer said in a 3 1/2-page form letter sent in response to 500 letters of support. "Who knows, I may become so knowledgeable that I can handle my own legal problem, which would dramatically cut down on the negative cash flow but could result in extending my stay at this hotel. It's a dilemma!

"I joined the very active Toastmasters Club which meets every Thursday night . . . . I'm spending two other evenings a week taking a conversational Spanish course.

"I can't see any fences, but they are there anyway," wrote the 65-year-old Thayer, who was sentenced in April to four years in the minimum security federal prison in Big Springs, Tex., near Midland, for enriching at least two of his friends with inside stock tips while serving as chief executive officer of LTV Corp. of Dallas and as director of several other firms. He had served as deputy to Defense Secretary Caspar W. Weinberger from January 1983 until resigning in January 1984.

Thayer writes that his prison neighbors "include the former president of the Louisiana State Senate; a Pan Am 747 captain; men that have done well in the oil and gas business; real estate developers; investment bankers and brokers; many businessmen who were charged with falsifying bank statements or fraud; damn few lawyers, and no members of the press or TV.

"The atmosphere can best be described as peaceful. There is no hint of violence of any kind. I haven't seen anyone show any irritation towards a fellow inmate. As a matter of fact, people are more polite to each other here than they are in downtown Dallas," Thayer continued.

"When I arrived, men whom I had never seen before went out of their way to help me through the first few days, and they were the roughest days I've ever experienced," said the former Navy pilot, who shot down six Japanese planes in the Pacific during World War II.

"The wisdom around the Camp says that it takes three to four months before most men can get their mind back where their body is and attain a level of stability that allows them to tolerate the remainder of their stay as a guest of the U.S. government.

"My cost-of-living index has gone down dramatically," continued millionaire Thayer, a former president of the U.S. Chamber of Commerce.

"I'm allowed to spend up to $95 a month at the commissary which is reasonably well stocked -- everything from water to ice cream.

"Quarters (the legal tender kind) have become a big thing in my life. They are used for laundry, soft drinks, telephone, etc. -- and I'm legal if I never have over $13 worth at any one time."

Thayer wrote that he is in a two-man room that shares a bath with an adjoining two-man room. "The rooms are furnished with a little more than the bare necessities and the only thing I can actually bitch about is that the beds are too soft," he said.

Big Springs has no walls and is called Club Fed by critics because of its elaborate recreational facilities and college dormitory atmosphere. A Big Springs prison duty officer said he could not comment on Thayer's description of prison life.

"Rumor has it because we are in a growth business it may be necessary to move another bed into each room. If that comes about, the entire facility becomes overcrowded and very uncomfortable . . . . One point of interest is the Glossary of Terms that has developed within the Bureau of Prison system by the inmates. Such as 'over the curb,' because there is no fence to go over; 'count,' periodic check to insure nobody has made an unauthorized exit over the curb; 'down,' time in prison, like I've been down 20 months; 'dropped a dime on me', a snitch in action; 'hack,' a guard; 'front porch,' offices of the warden, assistant warden and staff . . . .

"To summarize, I will have to say that physically it's not all that bad. As one friend said, 'Just pretend you are a 65-year-old naval aviation cadet.' I could probably adapt readily to that kind of an analogy if it weren't for one aspect that totally dominates the entire scene. Quite simply, it all adds up to the fact that my freedom was taken away, and I don't know when I'll get it back."