NATION, Page 27$1 Billion Worth of InfluenceHow a shaky businessman put five Senators in his cornerBy Margaret Carlson/Reported by Hays Gorey/Washington
Hardly any time elapses between the onset of a political
scandal in Washington and the search for the smoking gun. No one
is culpable until such explicit proof is found, and it hardly ever
is: the cagey Washington player wipes off his fingerprints and
heaves the weapon into the river.
That is why the scandal involving five U.S. Senators and the
Arizona business man who gave them more than $1 million is
tantalizing: the smoking gun is being waved for all to see. Charles
Keating is a former owner of California's Lincoln Savings and Loan
and a defendant in a law suit involving racketeering, fraud and
conspiracy in using the institution's funds. After the smoke
clears, bailout of this S&L is expected to reach $2.5 billion,
making it the nation's costliest thrift failure. When asked whether
his fat contributions to the five Senators influenced them to take
up his cause, Keating replied, "I want to say in the most forceful
way I can: I certainly hope so."
Keating sought to keep his savings and loan operating even
though the Federal Home Loan Bank Board (FHLBB) in San Francisco
had found enough bad loans and shaky business practices to shut it
down. After Keating purchased Lincoln in 1984, he switched from
investing in safe, single-family mortgages to go-go deals in raw
land, junk bonds and huge development projects like the
$900-a-night Phoenician Resort in Scottsdale, Ariz.
He asked for help from the five Senators, all beneficiaries of
direct and indirect contributions from him: Arizona Democrat Dennis
DeConcini (who had received $55,000), Arizona Republican John
McCain ($125,433), Ohio Democrat John Glenn ($234,000), California
Democrat Alan Cranston ($897,000) and Michigan Democrat Donald
Riegle, chairman of the Senate Banking Committee ($76,100). In
addition, according to the Arizona Republic, DeConcini's top aides
received more than $50 million in real estate loans. Keating also
gave McCain and his wife trips, including vacations in the Bahamas
valued at $13,400, which McCain paid for after they became public
knowledge.
Four of the five Senators met for an hour with FHLBB head Edwin
Gray on April 2, 1987. In a letter written to McCain last May, Gray
referred to this unprecedented intervention as "tantamount to an
attempt to subvert the regulatory process," and subsequently
branded DeConcini a "consummate liar" for not admitting that he
attempted to cut a deal for Keating. His charge was buttressed when
the Arizona Republic published a confidential memo prepared by
DeConcini's staff for the meeting listing Keating's bargaining
positions.
On April 9, 1987, all five Senators met with bank examiners
summoned from San Francisco to DeConcini's office. De Concini is
quoted in notes from the meeting telling the examiners that
"actions of yours could injure a constituent." Glenn said, "To be
blunt, you should charge them or get off their backs." Riegle
asked, "Where are the losses?" The federal banking agents pointed
out that Lincoln was "flying blind on all of their different
loans and investments," that there was no underwriting on most
loans, that the bank's practices "violated the law, regulations and
common sense" and that a $49 million profit reported for 1986 was
a result of bookkeeping trickery.
"What's wrong with this," DeConcini demanded, "if they're
willing to clean up their act?" Replied the agent: "This is a
ticking time bomb."
The bomb was allowed to keep ticking for two more years.
Fortunately for Keating, FHLBB head Gray was replaced by the very
sympathetic M. Danny Wall, a former aide to Utah's Republican
Senator Jake Garn. Wall transferred responsibility for Lincoln from
San Francisco to Washington. At House Banking Committee hearings
on Oct. 17, L. William Seidman, head of the Resolution Trust Corp.
and chairman of the Federal Deposit Insurance Corporation,
criticized Wall for keeping Lincoln open. As a result, the
federally guaranteed cost of paying back Lincoln's depositors went
up $1.3 billion, to $2.5 billion. Nationwide, the whole debacle of
rescuing failing S&Ls will end up costing taxpayers about $300
billion.
The RTC has sued Keating and other insiders for bilking Lincoln
of $1.1 billion. Among other things, the suit alleges, Keating, his
wife, his daughter and five other insiders sold 1 million shares
of American Continental Corp., which owns Lincoln, to the
employees' stock-owner ship plan for nearly $8 million, more than
they were likely to get on the open market.
Keating is also being sued by Lincoln customers, who claim they
came into the bank to make insured deposits but in a classic
bait-and-switch were steered into buying uninsured securities
issued by ACC to keep the institution afloat. In hearings held by
the House Banking Committee, Congresswoman Marcy Kaptur of Ohio
read a letter from a 65-year-old man who was persuaded by a
Lincoln saleswoman that the ACC bonds were just as safe as insured
certificates of deposit, paid a point more in interest, and ran
only ten months. "If ACC goes under in ten months," she told him,
"our whole economy is in trouble." Seven months later, ACC filed
for bankruptcy and the retiree lost all his $65,000 -- "$1,000 for
every year of my life," he wrote. Some 22,000 other customers hold
$250 million worth of worthless ACC bonds.
Common Cause has asked the Senate ethics committee to appoint
an outside counsel to investigate the five Senators' efforts for
Lincoln and their alliance with Keating, who has been in trouble
with federal regulators once before. In 1979 the SEC cited Keating
for receiving illegal loans and using corporate funds for the
personal benefit of insiders.
How did five respected U.S. Senators get mixed up with such an
operator? In a word, money. They are obsessed by it at the rate of
about $10,000 a day -- the amount it takes to fuel a Senate
campaign every six years. Glenn, who was carrying a $2 million debt
from his 1984 presidential bid, solicited $200,000 from Keating for
a political committee he controlled. Cranston solicited $850,000
from Keating in 1987 and 1988 for voter-registration drives. In
Cranston's tight 1986 Senate race against former Republican
Congressman Ed Zschau, Keating gave the California Democratic Party
$85,000. Of the need for campaign money, Cranston says, "I have
tried to change that situation but have been unsuccessful."
Incumbents, however, don't try as hard as they might, since the
high cost of elections and the ability to raise money from the
likes of Keating give them a formidable edge over challengers.
Keating's attorney Len Bickwit says his client has the right
to contribute to like-minded Senators, although the only philosophy
the conservative Keating shares with liberals like Glenn, Riegle
and Cranston is a regard for the Lincoln S&L. Four of the Senators
defend them selves by saying they were only helping a constituent
(Keating lives in Arizona, is incorporated in Ohio, and the S&L is
in California). Keating, however, was not merely asking for
assistance in tracking down a lost Social Security check. It cost
Keating nearly $1.4 million to get the Senators' help. It cost U.S.
taxpayers $1.3 billion more than it had to when he got his way.
