At the same time, his second term brought an acute deterioration in his White House team, with disastrous consequences. He allowed James A. Baker, his pragmatic chief of staff, to trade jobs with Donald Regan, his secretary of the Treasury. For four years, said Jane Mayer and Doyle McManus, Baker had helped guard Reagan "from his own worst instincts." Regan, on the other hand, let Reagan be Reagan. The loss of Baker at the White House, along with his political savvy, was widely blamed for many of the subsequent troubles that befell the president.
Regan and McFarlane distrusted each other; Cannon said they barely spoke. McFarlane also was at odds with Secretary of State Shultz and Secretary of Defense Weinberger, especially on Iran. McFarlane wanted to woo Iran away from Soviet influence, even if it meant encouraging the sale of Western arms to Iran for its ongoing war against Iraq. Shultz and Weinberger opposed it adamantly. American policy forbade selling arms to Iran and other sponsors of terrorism.
To Reagan, this was yet another wrangle over government policy. He was not really interested in government, Cannon said. He "was so obviously wearied by extensive analysis, particularly of foreign policy, that aides plunged into arcane material at their peril. If Reagan became sufficiently bored, he simply nodded off."
He had even less appetite for personal conflicts among his staff. "Reagan had learned in childhood from his father's alcoholic eruptions to withdraw at any sign of disharmony," Cannon said.
In March of 1984, William Buckley, the CIA station chief in Beirut, had been kidnapped by terrorists linked to Iran, and CIA Director Casey told Reagan he wanted Buckley back. Moreover, Casey saw merit in McFarlane's Cold War view of Iran as a barrier against the Soviet Union.
Terrorists took more hostages, seven Americans in all.
This seized Reagan's attention like no policy debate ever could. It evoked what Mayer and McManus call the "hard-liner's soft touch." The danger, they say, "was that, left to his own good intentions, the president would confuse the human interest with the national interest.... There was no clearer example of this danger than in his approach to the hostages."
In August 1985, McFarlane later testified, Reagan secretly approved the first of eight shipments of missiles and missile parts to Iran. Four of the shipments were made through Israel, which provided the arms and received replacements from the United States. The other shipments were made directly.
Reagan signed three "findings," or authorizations, for the secret sales. One spoke of freeing the hostages. Attached to another was a memo. Cannon says Reagan did not bother to read it, so Adm. John Poindexter, who had succeeded McFarlane as national security advisor, initialed it on Reagan's behalf. It approved using a private agent as a go-between.
North already had arranged for such an agent. He called it the Enterprise. It was a network of secret operatives, shadow corporations and Swiss bank accounts. He could use them to do something that might be illegal under Boland II but would further a cause dear to the president. He could divert profits from the Iranian arms sales to the Contras. It would keep them together "body and soul."
Secretly, Cannon says, North and the Enterprise demanded far more money from the Iranians than they paid the Defense Department for the missiles; just two of the shipments had yielded $6.3 million in profits. North kept none of the money for himself, but fellow operatives in the Enterprise pocketed some. North gave much of the rest to the Contras.
On Nov. 3, 1986, a Lebanese magazine, Al-Shiraa, told about a McFarlane visit to Iran and said he had sent weapons on Reagan's behalf. Three days later the Los Angeles Times and the Washington Post broke the first full story of the Iran arms sales. Diversion of profits to the Contras remained a secret, but Congress exploded in anger, and the trading of arms for hostages sputtered to a close.
By Cannon's count, Reagan had sold more than 2,000 missiles and in excess of 200 spare parts to Iran. Operatives in the Enterprise had pocketed $4.4 million. Another $3.8 million had gone to the contras, in defiance of the law established by Boland II. The CIA's Buckley had died in captivity. Three American hostages had been released, but terrorists had taken three others in their stead.
The president's first reaction was a "no comment," his second, a denial. Then his denial became confusing: He said that Weinberger and Shultz had supported an initiative toward Iran, which he had already denied existed. He refused to concede that he had traded arms for hostages. "Our government has a firm policy not to capitulate to terrorist demands," he declared to the American people in a televised speech. "That no-concessions policy remains in force, in spite of the wildly speculative and false stories about arms for hostages and alleged ransom payments.