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Remember the S&L Bailout? John McCain Hopes You Don't

This afternoon, John McCain joined in a summit with his rival Barack Obama and President George W. Bush, after “suspending” his campaign and rushing back to Washington to help rescue the American economy. As pundits and the public argue over whether this is the patriotic act of a true statesman or the desperate stunt of a political operator, McCain hopes they will forget what it really is for him: pure deja vu. McCain has already been here and done this, back in the roaring eighties, when he was in the thick of another financial meltdown that yielded a huge government bailout—and the worst scandal of his own political career.

The savings and loan crisis developed along lines remarkably similar to the current sub-prime crisis: A flurry of deregulation gave S&Ls the capabilities of major commercial banks without the corresponding oversight and regulation. S&Ls proceeded to make high-risk investments, including thousands of unsound mortgages during a housing boom. The government looked away—until the bottom fell out and the S&Ls started to fall like dominoes. Then it stepped in with a bailout of then-unprecedented levels, which added to ballooning deficits and ushered in years of recession.

When the S&L scandal unfolded, Barack Obama was working as a community organizer in Chicago, and George W. Bush was busy running a series of failed oil ventures and managing his baseball team in Texas. But John McCain was already in Congress—and in the S&L mess up to his neck.

The story of McCain's hinky financial dealings is told by Stephen Pizzo, Mary Fricker, and Paul Muolo, in their excellent book on the scandal, Inside Job. As they describe it, one day in 1987, Senator Dennis DeConcini (D-Ariz.) asked Ed Gray, head of the Federal Home Loan Bank Board (and a former press aide to Ronald Reagan) to stop by his Washington office. When Gray arrived he was unexpectedly was ushered into a meeting attended not only by DeConcini but also by Senators John McCain, John Glenn (D-Ohio), and Alan Cranston (D-Calif.).

All of these men had received substantial campaign contributions from Charles Keating, the colorful California developer (and anti-porn crusader) who owned American Continental Corporation and its subsidiary, Lincoln Savings and Loan. From 1982 through 1987, McCain had received $112,000. All four could also claim Keating as a constituent: Lincoln Savings was headquartered in California, and ACC was incorporated in Ohio and headquartered in Phoenix.

At the time, Keating’s operations were under investigation for questionable dealings and there was widespread suspicion in Congress that Gray’s Home Loan Bank Board might end up seizing them.

The four got right to the point: Why were Gray's examiners in San Francisco giving Keating such a hard time? It was noted that Lincoln, which had 24 branches, had started off making a lot of home loans—then suddenly stopped making them. “What do you want?'' Gray asked.

DeConcini offered a deal: We’ll assure you that they'll make more home loans and get into the basic business of home lending if you do something —you have to withdraw the equity risk regulations. These regulations required S&Ls involved in direct lending to set aside additional cash reserves in case there were big losses.

Gray was taken aback. Here he was facing four senators trying to negotiate business with him on behalf of a savings and loan that was in a regulatory procedure. Everyone in and out of government in Washington knows that politicians are not permitted to interfere with the regulatory process—though of course, they often do.

Gray refused to make deals, telling the senators if they had more questions to talk to the president of the San Francisco Federal Home Loan Bank Board. And sure enough, a few days later DeConcini asked the San Francisco officials to come to Washington to discuss “the Lincoln problem.” Gathered at DeConcini's office were McCain, Glenn, Cranston, and Michigan Democrat Don Riegle from the Senate Banking Committee. At this meeting, Jim Cirona, the San Francisco FHLBB president, was confronted by DeConcini, who said the federal bank regulators were out to get Keating. Then McCain, apparently trying to be cute, said, “ACC 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.”

But since the whole thing was improper, McCain proceeded in his unctuous way to suggest the regulators’ examination of Keating’s operations was taking too long. Maybe things would work better if there were “voluntary” instead of mandatory guidelines, he suggested.

At first incredulous at being put in this position by the senators, Cirona's team finally lost it, and told them they were sending a criminal referral on Lincoln to the Justice Department. This appeared to have a sobering effect, and the meeting ended. The San Francisco officials recommended that the government take control of Lincoln to stop its unsound lending practices, but it stayed in business for two more years—long enough to push high-risk investments on thousands of elderly investors, who lost their life savings when ACC finally went under in 1989. One member of the House Banking Committee, which investigated Lincoln, called it “a legal bank robbery.”

After the scandal broke, Keating said to reporters: “One question, among many raised in recent weeks, had to do with whether my financial support in any way influenced several political figures to take up my cause. I want to say in the most forceful way I can: I certainly hope so.”

But McCain initially insisted, ''I have done this kind of thing many, many times'' for various constituents, and compared what he’d done for Keating’s firms to ''helping the little lady who didn't get her Social Security.'' Later--echoing the language, but not the tone, of his coy quips in the meeting with the FHLBB--he would admit that “The appearance of it was wrong. It's a wrong appearance when a group of senators appear in a meeting with a group of regulators, because it conveys the impression of undue and improper influence. And it was the wrong thing to do.”

The senators who had defended the miscreants became briefly notorious as the “Keating Five,” implicated in influence peddling as part of one of the most crooked ripoffs in modern history. Three of them ended their political careers, but McCain and Glenn escaped with a scolding from the Senate Ethics Committee for “poor judgment,” and emerged relatively unscathed.

The scandal, never well understood by the public, seems to have been quickly forgotten. And astonishingly, it has thus far failed to gain much traction in the presidential election, in spite of the striking parallels between then and now. So twenty years later, a once scandal-ridden John McCain leads the charge up Capitol Hill to defend the American public from what he calls the “villains” of Wall Street.

Comments

This article just supports McCain that he is experienced and Obama isn't. McCain has learned from his mistakes. Obama has learned from Pastor Wright to be AfroCentrix.

Posted by: Jon on 09/25/08 at 6:40 PM Respond

Yeah, McCain learned from his mistake, allright. He's been doing his damndest to get rid of regulators ever since.

Posted by: smitisan on 09/25/08 at 7:07 PM Respond

Thanks for the information and education. Scary to think a chameleon like McCain might be the next President...
might be even worse than Bush.I will pass this information on to as many as possible.

Posted by: barb on 09/25/08 at 8:05 PM Respond

Aside from being a racist, you seem to have put a lot of *lipstick* on the fact that McCain hasn't learned a damn thing except how to lie better.

Posted by: Cheryl on 09/26/08 at 1:41 AM Respond

Minor nitpick: DeConcini was a Democrat.

Also, McCain's ties to Keating went beyond the campaign contributions -- Cindy McCain had a $500k investment in a shopping center owned by Keating. When McCain was questioned on this, he pointed out that he'd been a POW.

Posted by: Matt Weiner on 09/26/08 at 4:27 AM Respond

Sorry, a $350k investment by a trust jointly owned by Cindy and her father.

Posted by: Matt Weiner on 09/26/08 at 4:29 AM Respond

Cheryl dear, Pastor Wright is a racist and so is his student Obama, the community organizer in divisiveness.

Posted by: Cracker Jon on 09/26/08 at 6:39 AM Respond

Cracker Jon says:
"Cheryl dear, Pastor Wright is a racist and so is his student Obama, the community organizer in divisiveness"

Obama has distanced himself from Pastor Wright and denounced Wright's views.

I am more concerned about the McCain/Palin ticket and their choices of Pastors. We all know about the outrageous remarks from McCain's pastor/supporter/friend, and that is extremely worrisome--but, McCain denounced him. However, Palin's Pastor, Murthee, is a witchunter and calls for violence. He is far more worrisome to me. Murthee continues to go to Palin's church and she has not denounced him.

Posted by: nnorman51 on 09/26/08 at 7:52 AM Respond

Remember the S&L Bailout?

I most certainly DO!!

I recall how pissed I was when a House of Representatives comprised of 260 Democrats & 175 Republicans joined a Senate comprised of 55 Democrats & 45 Republicans in order to force taxpayers to bail out a bunch of stupid bankers.

Yeah, I remember.

I also remember how Democrats have continued to feed the voters that B.S. line about how the Repubs are friends of the wealthy bankers, and they (Dems) are the friends of the poor workin' man.

Made an EX-Democrat out of me. (but, No..., Not a Republican, thank-you-very-much...)

Posted by: I Remember on 09/26/08 at 9:36 AM Respond

Vote for Ralph Nader for real change. The two parties leadership support their contributors on Wall Street and the banks.

Posted by: Todd on 09/28/08 at 5:40 PM Respond

How morons leave in the USA? over 50%, the ones who voted twice for W and are about to bring Freddy Mac Cain and his bimbo VP to the WH.

The last time the US Congress gave a $100 billion free ride to Bush and his cronies for the Iraq "Reconstruction" over $30 billion (not Million, Billion with a "B") in cash (real green 100 dollar bills sent over there in pallet racks) simply disappeared. Thanks to anonymous numbered bank accounts in Lichtenstein, Switzerland and Luxemburg it was not lost for everyone.

Now this country is about to give the atomic holocaust switch to a senile former Vietnam "hero" who napalmed thousands of civilians including babies, kids and women.

Barrack never had a chance with his black descent in this country who was so quick to ridicule the French for asking to wait and plan better a war that would open the Pandorra box.

The Freedom Fries made you laugh at us back then? 5,000 dead US young men later we, the French people, are going to really laugh at those 50% PLUS MORONS WHO ARE GOING TO ELECT WORSE THAN BUSH FOR THE SAKE OF NOT ELECTING A BLACK PRESIDENT IN YOUR REDNECK COUNTRY.

A future President that divorced a poor disfigured woman for a rich bimbo so he could have the lazy life of a crooked politician and never have to work a day in his life (another bimbo? looks like Liquid Papy likes beauty queens, hey?), was roten to the bone in this S&L scandal that repeated itself 15 years later (you morons never learn, don't you?)

Posted by: FreedomFries on 10/05/08 at 10:25 PM Respond

Cracker Jon, Cindy's father was with the Italian Mafia and McCain by association as well.

Posted by: Joan, Ohio on 10/06/08 at 7:44 AM Respond

Jon, If McCain had learned from his mistakes, we wouldn't be in a recession now because of deregulation. The republicans controlled congress from 1995 - 2006 and didn't do anything except deregulate, deregulate. The trickle down economics of Reagen and the republican party is DEAD!

Posted by: chillingaz on 10/06/08 at 9:38 AM Respond

For a CHANGE, vote DEMOCRAT! enough of the BUSH-IT!

http://www.washingtonmonthly.com/archives/individual/2008_10/014997.php

Posted by: Texas Democrat on 10/06/08 at 9:44 AM Respond

Down with McBush!

http://my.barackobama.com/page/invite/keatingvideo

Posted by: Texas Democrat on 10/06/08 at 9:48 AM Respond

What does "AfroCentrix" even mean, Jon? You sound like you're illiterate, and a racist. What the hell are you even reading Mother Jones for? It's probably over your head.

Posted by: itsgetrealtime on 10/06/08 at 11:37 AM Respond

All,

We all know John McSame, soon to be John McShame, has a myriad of issues. From Keating 5 and Cindy's drug addiction to his father-in-law's ties to the mob. And yet, we don't seem to talk enough about that. Cindy was addicted to pain killers, I sympathize, but she ruined peoples lives in the process (getting prescriptions filled in her subordinates' names) to hide her habit. We can't afford that in the White House. There is no evidence of real "treatment" or rehab, except by her own admission (a one-week stay to kick a drug addiction-yeah). Her fortune was no less than a result of her father's ties to the mob. If guilt by association is the game, look in the mirror McShame. I also think Sarah Palin will wish she had kept those so-called "can of worms" closed now that the Keating 5 scandal has come to light. Her unethical behavior has also come into question as well. Don't just read what the media says, read what Alaskans say (i.e.. Bush in a skirt). Not just talking about the attempts to have her brother-in-law fired. The truth will be revealed even if the two bodies investigating find the accusations unfounded. Whether her self-appointed board investigates (how ethical is that)or the bipartisan committee there is a truth to be told if people weren't so afraid of the backlash from the governor's office. She agreed to the investigation, then realized "if I had known that I would have been chosen as the VP nominee, I would not have offered the investigation. So, I will just do what McCain does: be hypocritical and just not cooperate." Give me a break she is definitely playing us. As a female veteran, I find it offensive that the GOP thinks this woman is ready to lead the USA with her sole qualification being that she is geographically closer to Russia than the rest of us. That is what I call a ticking time bomb.

Posted by: Reality Check on 10/06/08 at 4:33 PM Respond

Jon, you need to re-read the article and others because you missed the point. Not only does McCain have the Keating Five scandal his record but he is the former Chairman of the Senate Commerce Committee where he directly oversaw the deregulations of the finance sector that has got us in the mess we are in today. At one time, he tried to get ALL regulations suspended. He has spent years trying to get rid of every regulation he could and what does he do two weeks ago? That's right, he called for more regulations. Are you seriously that blind to the hypocrisy? Everybody simply must get past the old stereotypes of the two corrupt political parties we are currently stuck with and rise up to take this country back. It is not as simple as, "Democrats raise taxes and Republicans lower taxes." It is just not true. Do you really think that spending $10 billion a month in war and another $700 billion bailing out Wall Street leads to lower taxes? The next president is raising taxes no matter who it is. Incidentally, my wifes parents' lost everything (business and home)due to the S&L scandal that McCain was part of. Finally, lest you think I'm an Obama supporter,I am not. I'm writing in Ron Paul. These corrupt bastards can all go to hell.

Posted by: fletch on 10/07/08 at 7:02 PM Respond

"It's up to you to find that out, kids" ought to be Obama's key phrase during the next debate! That'll burn the shit out of that old fart.

Posted by: Apache on 10/08/08 at 5:19 PM Respond