Newsday January 21, 1988, Thursday, ALL EDITIONS SECTION: PART II; Pg. 4 LENGTH: 2912 words HEADLINE: Connally's Spectacular Failure; 'It's an embarrassing loss, a humiliating loss, but,' says the former governor and adviser to presidents, 'it's not a tragedy in terms of human tragedy' BYLINE: By Richard C. Firstman DATELINE: HOUSTON KEYWORD: PROFILE; JOHN CONNALLY; TEXAS; GOVERNOR; BANKRUPTCY; OIL; REAL ESTATE BODY: THE MOVERS had loaded up the trucks at the Picosa ranch, had pulled through the bright blue gates and headed past the farmland where he had been raised, John Connally was left with not much more than a bed, a breakfast table, a set of china. In the bedroom, there was a makeshift nightstand, fashioned from a taped cardboard box by one of the moving men. The ranch had the feel of American failure. Most of the horses had been auctioned, the cattle sold. There was just one ranch hand, and his wife; they would be gone soon. The land, 7,120 acres appraised at $ 4.1 million, would be taken. "We're reconciled to it," Connally had said as the movers prepared to de- part. Weeks earlier, the workmen had gone to Austin, to empty the luxurious home Connally and his wife, Nellie, had owned in the hills outside the state capital. The house had been sold. The contents, like those from the ranch house, would be delivered to a Houston auction house, to be tagged and sold to the highest bidders. Connally had spent six years in Austin, as governor of Texas. He had served in the Cabinet, aspired to the presidency, been a confidant and protege of Lyndon Johnson. But he also had been a businessman. Shuttling between the worlds of government and industry for four decades, Connally had become rich but not Texas rich. And in 1981, at the age of 64, Connally decided to leave politics after a futile run for the Republican presidential nomination and go home to make some serious Texas money. At a time when the state was riding high with $ 32a-barrel oil, Connally teamed with Ben Barnes, a former lieutenant governor who had been his political protege. In a whirlwind of deals backed by the pair's immense prestige, they borrowed more than $ 200 million to invest in real estate projects, oil and other ventures in Texas and New Mexico. Connally raised and used money with abandon - the Lone Star way. "We were riding the crest," he would say later. It is fast becoming modern Texas legend that John Connally was sure he could not lose. PAGE 3 (c) 1988 Newsday, January 21, 1988 But just as Connally and Barnes were being heralded as the newest tycoons-in-the-making, the oil-driven Texas economy began to wheeze and kick, and then it came to an abrupt halt, taking with it the real estate, cattle and drilling industries - Connally's three main business interests. On July 31, 1987, the Texas bust - which has taken such big-money names as the Hunt brothers of Dallas, T. Cullen Davis and Clint Murchison - claimed perhaps its most symbolic victim. John B. Connally, a former custodian of the United States treasury, declared personal bankruptcy at the age of 70. "It's like the lion being brought down," said Texas historian T.R. Fehrenbach. "In Texas, he is a spe- cial figure. He is so typically Texas. He looks like what the breed should look like. His being brought this low is like a king falling. It's almost like a biblical symbol." Tall and cowboy-lean with craggy features, with his silver hair and sharp tongue, a voice and bearing that seemed to swagger with overconfidence, Connally embodied Texas. He was not just a deal-maker but a symbol of Texas strength and of self-styled success. He was "Big John," a double-reference to stature. Connally was one of 36,552 Texans who declared bankruptcy last year, but his collapse seems to have greater meaning than those of wealthier men. In a time when power is increasingly at the confluence of business and politics, Connally's spectacular failure represents a kind of formal end to the era of Texas prosperity and power in the 1980s. "He dared greatly and he fell greatly," said Jerry Hart, who will sell John and Nellie Connally's possessions in a series of auctions beginning tomorrow night, and who has known them for many years. "Here's a man who should have been insulated from all this. A man who enjoyed the accolades and the trappings of being governor, holding cabinet offices, a man who would be president. And now he's being stripped of his possessions and being asked to start over at 71." Bankruptcy, however, is relative - especially in Texas, a state founded by men on the run from Eastern creditors. The Texas constitution is filled with protections for fallen barons that amount to a sort of socialized poverty: each according to the means to which he has become accustomed. Under state law, Connally, who estimates his personal worth was once around $ 10 million, can keep his "homestead," the 12-room ranch house in his hometown of Floresville, a few miles down Route 181 from the Alamo. He can keep 200 acres of his ranch. He can keep $ 30,000 wort of personal possessions. Connally, who receives nearly $ 100,000 a year from pensions, Social Security and fees for sitting on corporate boards, also rents a one-bedroom apartment in Houston. He drives a Ford import, but his former law firm provides a full-time secretary. Gone, though, are the homes in Austin and Santa Fe, the condominium in Houston, the stable of horses and the herd of Santa Gertrudis cattle. Adjacent to the ranch house, there is a jet landing strip, but no jet. "John, what are those?" Nellie Connally is supposed to have asked her husband not long after they declared bankruptcy. And John Connally is supposed to have replied, "Well, Nellie, those are road signs, and we're gonna be seein' a lot of those from now on." GONE also will be a lifetime's worth of possessions, whose sale this weekend Connally hopes will raise between $ 2 million and $ 3 million. It will be nowhere near the $ 48 million he owes, a debt that will be wiped away under the bankruptcy arrangement. But Connally, never known as the most accessible PAGE 4 (c) 1988 Newsday, January 21, 1988 public figure, has submitted to unusual exposure in an effort to promote the sale. It's a matter of pride, he says. "He wants to show his creditors he feels responsible," says Hart. Even Connally's political enemies - who remember him as the kind of politician who, stopping to buy some fudge from a New Hampshire shopkeeper during a presidential campaign swing in 1980, took out a wad of bills and asked if anybody had "change for a hundred" - agree that Connally has faced humiliation with dignity and courage. Maybe that's the Texas way, too. "I guess what hurts most is to fail," Connally said during an interview yesterday. "My motivation was to get into business, to build something, to create something and to succeed. It wasn't the money. If money had been my goal, I would have carved out a different kind of life from the beginning. Oh, I've had enough money, far more than the average family in this country, and we're losing it all now. It's an embarrassing loss, a humiliating loss, but it's not a tragedy in terms of human tragedy." Earlier this week, Nellie Connally, a gracious and friendly woman, conducted a walking tour of the cou- ple's possessions, which were displayed in Hart Galleries roughly the way they were arranged in the Connallys' homes. The prestigious gallery, the size of a respectable furniture store, was filled with what it is calling "The Collection of the Honorable and Mrs. John B. Connally" - including some items the Connallys had purchased at auction in this very gallery. There were Oriental rugs, Western oil paintings, saddles, gubernatorial desks, furniture and collectibles from around the world, even a washer-dryer. She came to four tables displaying her husband's collection of rifles - three dozen elegant antique Winchesters, Remingtons and Colts. "Isn't that sad," Nellie Connally said, "for a man to lose all his guns?" John Bowden Connally - the tenant farmer's son who had grown up South-Texas-poor, who had left the peanut fields for college and law school and worked his way into freshman Congressman Lyndon Johnson's inner circle by age 22, who had learned some of the lessons of life while working for multimulti-multimillionaire wildcat oilman Sid Richardson, who had served briefly as Secretary of the Navy in the Kennedy administration, who had gone home to Texas to run for governor - first came to true national prominence on the afternoon of Nov. 22, 1963, when he took a bullet in the back while riding alongside President John Kennedy in Dallas. In politics, Connally's timing had not been impeccable: He party-hopped to the Republican side just about the time John Dean was being sworn in by Sam Ervin's Watergate committee. He ran for the Republican presidential nomination the year Ronald Reagan proclaimed morning in America, spending $ 12 million and collecting one convention delegate. (Connally had actually come closer to the Oval Office in 1973, when Richard Nixon wanted him to replace Spiro Agnew as vice president. Faced with a hostile Congress, Nixon named Gerald Ford instead). AS it turned out, Connally's sense of timing was not much better in business. In 1981, he formed a partnership with Barnes, who had been the golden boy of Texas politics in the late '60s - speaker of the Texas House at 26, lieutenant governer at 30. Together, they launched an investment and development partnership that would, in just two years, build $ 200 million worth of real estate projects - with other peoples' money. Because of who they were, getting financial backing was not a problem. But because they had virtually no PAGE 5 (c) 1988 Newsday, January 21, 1988 corporate assets, Connally and Barnes had to personally guarantee the loans. Their backers - savings and loans, major banks, private developers, even the giant General Electric Credit Corporation, which lent $ 11 million - were glad to oblige. "It was the boy wonder and the elder statesman," said Walter B. Hailey Jr., a long-time friend and occasional business associate of Connally's. "People were calling me and wanting me to introduce them to the governor. They'd say things like, 'Governor, whatever you need. We want to be partners with you.' People were waiting in line to get into his office. He never had to leave Austin." But he did, flying in his personal jet to sew up deals. Approaching 65, Connally pursued wealth like a man possessed, and like a man who felt that success was guaranteed. He had always conveyed the sense that he was a doer, a winner with supreme self-confidence. But like Texas, Connally and Barnes were over-extending themselves toward disaster. In Houston, they built a shopping mall and an office tower. In Austin, they built an upscale housing subdivision (each moved into one of the homes, later selling them in bankruptcy). On South Padre Island, a resort favored by wealthy Mexicans, they built a 120unit beachfront condominium and shopping mall. And throughout Texas, they invested in oil and gas wells - even though the price of oil had peaked and was beginning to slump. The first sign of trouble came when Mexico devalued the peso and imposed currency restrictions, putting the South Padre Island project in jeopardy. Then came OPEC. With Texas so dependent on the price of oil, and the Persian Gulf producers in command - in effect influencing everything from the price of real estate to the solvency of savings and loans - the state's economy soured. For Connally and Barnes, it meant empty office buildings, unsold condominiums, bankrupt shopping centers. "It all began to snowball," Connally said. Some people say that a few of the Barnes-Connally projects were also poorly managed. But mostly, Connally's associates say, he got in too late. Sitting comfortably in his expansive house overlooking the gentle hill country northwest of San Antonio with his own multimillions intact, Walter Hailey observed: "When the road turns, if you keep going, you go over the cliff." By 1985, the lawsuits and foreclosures were piling up. Connally and Barnes were in personal debt by more than $ 200 million. They spent months trying to raise money to stay afloat. "Oil was $ 32 a barrel when we started," Barnes said in an interview. "We didn't know it was going to be $ 15 a barrel. We had all our projects started. We were right in the middle. We tried a year longer than most to pay every dime back. We went to Hong Kong, we went to Europe, we tried all over the world to get projects refinanced in Texas. And it couldn't be done. People had read all these stories about the Texas depression and unfortunately those stories were true." Connally now believes the easy credit he and others enjoyed in Texas was a trap. Though he says he was trying to cash in on the Texas boom while it lasted - "get as much done as quickly as we could" - it is now obvious to Connally that he and Barnes tried to do too much too fast. "What I learned was that when you go into projects you know will take years to develop, build and market, you have to have patient money. You can't go with short-term money. We didn't have the staying power. And you need to spread your risk. All our financing was done in PAGE 6 (c) 1988 Newsday, January 21, 1988 Texas, and lending institutions here were in trouble themselves." "We knew it was coming," Nellie Connally said. "We worried and worried for 18 months. John would wake up in the night and be up for hours night after night. I wanted to declare bankruptcy sooner. By hanging on, it depleted everything we had." Throughout his career, his detractors have detected in Connally the faint suggestion of impropriety: He was indicted but acquitted in 1974 of charges he had accepted illegal payments from the dairy industry and had lied about them; he had publicly chided Nixon for failing to burn the tapes. A tough-talking conservative no matter what party he attached himself to, Connally was seen as the rich man's politician, insensitive to the poverty he had overcome. But most Texans have always seemed to regard him kindly. Now, they see him as a victim, not of his own excesses but of economic forces beyond his control. 'I think there's vastly more sympathy for him than for your average cratering millionaire, even among people not attuned to him politically," Feh- renbach said. "The Hunts, for instance, there was no sympathy for them. There was almost contempt. But Connally's different. Here's a man self made, extremely successful politically. There's pretty strong ethics in Texas politics - not morals, there's a difference - and he's always been perceived as an honorable man." Even those who have lost money on Connally seem forgiving. "I've been in the world," said Herman A. Bennett, a building contractor who co-signed a $ 4.8 milllion note with Barnes-Connally to build four shopping centers. "He lost a lot of people's money but so did many of the banks and savings and loans in the Southwest. He didn't do it on purpose. That's life, I guess." In politics and in business, Connally has tended to care little for advice, convinced he was always right. But paradoxically, his friends say, he has learned to deal with adversity - his brush with death in 1963, his indictment in 1974, his bankruptcy in 1987. Says Walter Hailey, "He is someone who has learned to live with ambiguity." Texans such as Connally, Hailey thinks, are better able to persevere because they often come from basic circumstances. "They're closer to the soil," he says. "They ride horses. They're just plain folks." In his own analysis, Connally seems to acknowledge a certain ambiguity. "Coming from a poor background, which Nellie and I both did, we had the urge to own. Not to rent, but to own. That's why we bought so much land, and all these things. But the assassination in 1963 of President Kennedy and my own wounding gave me a different perspective on life itself. You put a different value on things. We have our health, our children, we have each other. In the final analysis, human relationships are what's important. Things, you can buy. Things, you can sell." After the things are sold this weekend, the couple will think about the future. Connally, who says he will never retire, has had offers from three law firms and from people proposing "all kind of deals." For now, though, the Connallys will return to what's left of the Picosa, to the nearly empty ranch house they built in the 1960s when Connally was governor, a house they've never really lived in. Connally wants to spend some time in the study, writing an autobiography. PAGE 7 (c) 1988 Newsday, January 21, 1988 The house, spacious and contemporary-rustic, is a mile or so down the road from where Connally grew up, and where his brother still lives. Most of his neighbors don't know him well. "Around here people are so damn independent," observed one neighbor, Boyd Wilkins, encountered on horseback at the roadside. "They got their cliques - the Germans, the Poles, the Mexicans. His is all up in politics." Backtracking to town - a left at the big oak tree, a right at the bend, across the tracks, a right at the Catholic church - Connally will find Floresville stuck in time, a sleepy South Texas hamlet with a Sears catalog outlet, a few traffic lights (all but one blinking yellows) and a main street where the same person, Bill Newnam, will fix your vacuum cleaner and notarize your will. The town has many Mexican immigrants, poor farm hands mostly. Last Sunday the only sounds in town were those coming from the jukebox in a saloon patronized by immigrants who did not speak English and so could not be asked what they thought about John Connally. "I have much to be grateful for," Connally had said in Houston. "I've known many of the world's leaders and been a part of much of the history of this country for the past half century." Surrounded by his last 200 acres, John Connally will go home to Floresville and write the story of his life. GRAPHIC: 1) Photo by John Davenport-John Connally at the ranch, helping move his belongings to be auctioned: 'We're reconciled,' he says. 2) Photo by F. Carter Smith-Nellie Connally and a statue of St. Andrew, one of the items on auction. 3) F. Carter Smith-On the auction block are the trappings of political power from Connally's days as governor of Texas. 4) Cover Color Photo by Bruce Bennett/The Houston Post-John Connally HOUSTON CHRONICLE