Narrator: Carter's commitment to fiscal restraint appealed to a growing number of Americans. "He brings to the [office] a refreshing habit of plain words and simple manners," wrote Newsweek. "A mind and discipline of tempered steel, and an insatiable appetite for work. Carter had entered the presidency with only 51 percent of the vote. By June, he enjoyed an approval rating of over 70 percent. Then, came an event that rocked the foundation of the Carter presidency. It was called "the Lance affair." In July 1977 Carter's budget director, Bert Lance, was accused of financial improprieties at his bank in Calhoun, Georgia. A federal investigation cleared Lance of any illegal activity, but concluded he had engaged in "unsafe and unsound banking practices."

Carter (archival): ... Bert Lance is a man of competence and a man of integrity.

Narrator: Believing the affair was behind him, Carter stood by his friend.

Carter (archival): Bert Lance enjoys my complete confidence and support. I'm proud to have him as part of my administration.

Narrator: Carter had miscalculated. To the press, the issue was ethics, not the law. Sensing a scandal, they went on the attack.

Jody Powell: There were a lot of journalists who very much wanted to prove that they could be as tough on a Democratic president as they had been on a Richard Nixon. There was a real desire to make sure that it was clear that they were going to pursue this every bit as aggressively.

Peter Bourne: One of the things people like to go after more than anything else is what they perceive as hypocrisy -- so that you're judged by the standards that you set for yourself. And certainly Carter's talking about "I'll never tell you a lie," emphasizing honesty provide an easy opportunity.

Narrator: Carter's inner circle urged him to get rid of Lance. But he was torn between loyalty to his friend, and his own reputation. For weeks he allowed the Lance affair to fester.

Bert Lance (archival): [Do you feel you were drummed up?] A. My statement speaks for itself. I have no comment about being drummed out. I said in my statement that I had to analyze and question...

Bert Lance: The day that I resigned, I came home and I was spent. I lay down on the bed crying about the situation. Just from the standpoint of just having run out of any adrenaline or emotion of anything else. And so we had all that horde of media out on the front yard that had been there constantly. I guess it was a suicide watch.

Elizabeth Drew: Looking back he wasn't that big a deal. But what it did do at that time was give the first blow to the image that Carter was trying to project that his was a squeaky clean administration.

Carter (archival): Whether my own credibility has been damaged I can't say. I would guess to some degree. An unpleasant situation like this...

Narrator: Carter's approval rating plunged 25 points.

Jody Powell: It would have been better for the president if we had brought that to an end sooner. It threw us off our stride. It made it harder for us to talk about other things, and sort of played into questions about whether we could lead and run the country

Pat Caddell: Until that moment, we had been driving the agenda. Everyone danced to our tune. After that, we danced to everybody else's tune. And that hurt us with the public, because now Jimmy Carter is not in charge.

Narrator: Only nine months in office, Jimmy Carter was a wounded leader, struggling, to regain the confidence, of the American people. He would succeed where others had failed. And face challenges no one could have imagined.