The Savings and Loan Scandal of the late 1980’s resulted in the failure of 747 savings and loan associations, costing over $160 billion. The federal government ended up bailing out the saving and loan associations to the tune of $120 billion (Over $1.3 billion went to Neil Bush’s S&L, George W.’s brother). Most economists believe that the crisis led to the recession of 1990-91.
Five US Senators were involved in an influence-peddling scandal, improperly trying to steer regulators away from Charles Keating’s troubled Lincoln Savings and Loan. John McCain was one of the Keating Five.
McCain’s involvement is vitally important as our nation struggles with the current financial crisis because it testifies to his lack of judgment and his inability to make decisions in a time of crisis. The US Senate investigation that followed the scandal cited McCain’s “poor judgment.” McCain agreed with that assessment.
What was his poor judgment?
· Meeting with regulators with the clear intention of steering them away from investigating Keating.
· Accepting $112,000 in political contributions from Keating and associates.
· Getting into business with Keating. Cindy and her father invested $359,100 in a shopping center scheme with Keating.
· Taking nine trips, including 3 to the Bahamas, on Keating’s dime. McCain brought his family and babysitter on these trips.
The Arizona Republic ran a series on its home state senior senator in March of 2007. The following are excerpts from the portion of the series on McCain’s involvement in the Keating Five scandal.
The whole story can be read here:
· "McCain's a wimp," Keating replied, according to the book Trust Me, by Michael Binstein and Charles Bowden. "We'll go talk to him." Keating had other business on Capitol Hill and did not reach McCain's office until 1:30. A DeConcini staffer already had told McCain about the "wimp" insult. When he arrived, Keating presented McCain with a laundry list of demands for the regulators.
· In an interview with The Republic, Black said the meeting was a show of force by Keating, who wanted the senators to pressure the regulators into dropping their case against Lincoln. The thrift was in trouble for violating "direct investment" rules, which prohibited S&Ls from taking large ownership positions in various ventures. "The Senate is a really small club, like the cliche goes," Black said. "And you really did have one-twentieth of the Senate in one room, called by one guy, who was the biggest crook in the S&L debacle." Black said the senators could have accomplished their goal "if they had simply had us show up and see this incredible room and said, 'Hi. Charles Keating asked us to meet with you. 'Bye.'"McCain previously had refused DeConcini's request to meet with the Lincoln auditors themselves. In Worth the Fighting For, McCain wrote that he remained "a little troubled" at the prospect, "but since the chairman of the bank board didn't seem to have a problem with the idea, maybe a discussion with the regulators wouldn't be as problematic as I had earlier thought."McCain concedes that he failed to sense that Gray and the thrift examiners felt threatened by the senators' meddling.
· According to nearly verbatim notes taken by Black, McCain started the second meeting with a careful comment. "One of our jobs as elected officials is to help constituents in a proper fashion," McCain said. "ACC (American Continental Corp.) is a big employer and important to the local economy. I wouldn't want any special favors for them. . . . "I don't want any part of our conversation to be improper." Black said the comment had the opposite effect for the regulators. It made them nervous about what might really be going on. "McCain was the weirdest," Black said. "They were all different in their own way. McCain was always Hamlet . . . wringing his hands about what to do."
· As the investigation dragged through 1988, McCain dodged the hardest blows. Most landed on DeConcini, who had arranged the meetings and had other close ties to Keating, including $50 million in loans from Keating to DeConcini's aides. But McCain made a critical error. He had adopted the blanket defense that Keating was a constituent and that he had every right to ask his senators for help. In attending the meetings, McCain said, he simply wanted to make sure that Keating was treated like any other constituent. Keating was no ordinary constituent to McCain. On Oct. 8, 1989, The Arizona Republic revealed that McCain's wife and her father had invested $359,100 in a Keating shopping center in April 1986, a year before McCain met with the regulators. The paper also reported that the McCains, sometimes accompanied by their daughter and baby-sitter, had made at least nine trips at Keating's expense, sometimes aboard the American Continental jet. Three of the trips were made during vacations to Keating's opulent Bahamas retreat at Cat Cay. McCain also did not pay Keating for some of the trips until years after they were taken, after he learned that Keating was in trouble over Lincoln. Total cost: $13,433. When the story broke, McCain did nothing to help himself. "You're a liar," McCain said when a Republic reporter asked him about the business relationship between his wife and Keating. "That's the spouse's involvement, you idiot," McCain said later in the same conversation. "You do understand English, don't you?" He also belittled reporters when they asked about his wife's ties to Keating. "It's up to you to find that out, kids." The paper ran the story. In his 2002 book, McCain confesses to "ridiculously immature behavior" during that particular interview and adds that The Republic reporters' "persistence in questioning me about the matter provoked me to rage."
· In the book, DeConcini reiterates his allegation that McCain leaked to the media "sensitive information" about certain closed proceedings in order to hurt DeConcini, Riegle and Cranston. It's a fairly serious charge. The Boston Globe revisited the Keating Five leaks in 2000. The story paraphrased a congressional investigator, Clark B. Hall, as personally concluding that "McCain was one of the principal leakers." The newspaper also reported that McCain, under oath, had denied involvement with the leaks.McCain owns up to his mistake this way: "I was judged eventually, after three years, of using, quote, poor judgment, and I agree with that assessment."