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Monday, October 06, 2008

 

Remember Who Was In Charles Keating's Five?


Huffington Post reported today on the release of a 13-minute documentary — "Keating Economics: John McCain and The Making of a Financial Crisis" — about Sen. John McCain's involvement in the savings-and-loan scandal of the late '80s as a member of the "Keating Five."

It's impossible to forget those huge budget deficits of the early 1990s, though not everyone seems to recall what helped make them. Of course, it was the S&L scandal, which had a lot to do with the deregulation of the savings-and-loan industry in the early 1980s.

One of the S&Ls embroiled in that scandal, Lincoln Savings and Loan, of Irvine, CA, was chaired by a guy named Charles H. Keating, Jr., who also happened to be a major donor to the campaign of John McCain.

Federal regulators — the Federal Home Loan Bank Board — started to sound the alarm about what was going on before things went bad, but Keating had a few friends in the Senate, at least five, and, well, they kinda, sorta put the kibosh on the bureaucrats.

At the time, McCain and the other members of Keating's five could have rolled up their sleeves, respected the regulators and done what their constituents sent them to do in DC, but instead — to put it in the parlance of Alaska Gov. Sarah Palin — they appear to have taken their cues from the "bad guy" and blew the matter off until the whole thing got a lot worse.

The S&L crisis as a whole — not simply Lincoln S&L — ended up costing taxpayers between $124.6 and $160.1 billion. [See GAO Report]

Sure, McCain and the other four got slapped later on for interfering and exercising "poor judgment," but it's not like any of them lost their jobs over it. Of the five, three retired and McCain and John Glenn ran for re-election — both retaining their seats.

Lincoln S&L, which went down in 1989, ended up being one of more than 700 S&L associations that failed in the U.S. as a result of the S&L crisis.

At Lincoln — that one S&L — More than 20,000 shareholders were left holding the bag.

Keating took the fifth after being subpoenaed by Congress in 1989, and eventually did time for fraud.

The Chicago Sun-Times has a nice True-or-False breakout on McCain's role.

Here's a Snippet from Huffington Post:
William Black -- a deputy director of the Federal Savings and Loan Insurance Corporation during the "Keating Five" scandal that nearly ended McCain's political career -- says the Arizona Republican's chief errors at the time were underestimating the importance of regulation and relying too heavily on slanted advice from captains of industry.

"In the S&L crisis, he took his advice from the worst [kind of] criminal. Charles Keating is the person he went to for his policy advice," Black said. "Now, he certainly is getting advice from Phil Gramm, Carly Fiorina, Rick Davis -- the whole group of economic and top political advisers are lobbyist types. He just doesn't seem to get it, ever, that the advice is going to favor their clients. Even if they just stop being lobbyists, you can't just turn that off instantly. It's their mind state that develops. ... The biggest lesson is that, when you deregulate and de-supervise, you create an environment where control fraud emerges. You hyper-inflate bubbles; you get criminalization."


— TJ Sullivan in LA
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