The Economy: Deregulation – McCain, Keating, and Lincoln Savings and Loans. tagged: , , , , , , , , ,

The Economy: Deregulation – McCain, Keating, and Lincoln Savings and Loans.

Posted by Claire Connelly in Politics

As John McCain feigned empathy for the “victims of Wall Street greed,” not nearly enough attention was drawn to McCain’s direct involvement in the most expensive failure of a financial institution and the most horrendous case of control fraud in Americas history. McCain was directly involved in the Lincoln Savings and Loans Control Fraud disaster which defrauded 23 000 Lincoln bondholders and caused many elderly people to lose their entire life savings .

Control Fraud is a fraud which is executed by the controlling members of an organisation. In this case, Chairman -Charles Keating looted the Lincoln Savings and Loans Association for almost all it was worth, costing the White House (and eventually tax payers) over 3.4 billion dollars.

Charles Keating was the Chairman of Lincoln Savings and Loans. His reputation amongst the financial and political community was for the “buying and selling of politicians.” Of the list of political croneys Keating had in his pocket – John McCain had the closest personal relationship with Keating: “They were confidants and mutual political supporters.” Much of McCain’s policy advice came from Mr. Keating, on how to regulate, or in this instance not regulate – Savings and Loans.

McCain was one of five senators to receive personal and political benefits in the late 1980s and 1990s for his complicity in a conspiracy to cover up the most massive violation of the Direct Investment Rule. Keatings’ political contributions to each of the senators, totaled $1.3 million.
Transcribed from the Senate Ethics Committee hearing, we learned that John McCain’s actions “were solely responsible for the Savings and Loans failures of scandalous proportions.”
The Senate hearings revealed to what extent John McCain’s services were bought by Charles Keating: “You were bribed, you sold your office, you traded your honor and your good names for contributions and other benefits:”

Over three of his campaigns, including his 1986 Senate campaign, John McCain received over $112 000 from Charles Keating, ACC employees, and their families. Moreover McCain’s willingness to simply abandon American tax payers, favoring a system of corruption, exploitation, and greed – simply makes him completely unfit to be the next Commander in Chief.

In 1984 and 1985 McCain wrote several letters to Chairman of the Federal Home Loan Bank Board (FHLBB), Edwin J. Gray, and other Whitehouse Officials requesting that they delay the promulgation of the Direct Investment Rule. Evidence has shown that he did this at the urging of Mr. Keating and other Lincoln Savings and Loan representatives.

Keating violated the Direct Investment Rule by over $615 million, – the largest violation of a financial agency. As a result, Savings and Loans failed – catastrophically.

Keating, and several senators (of which McCain was one) met with regulators about a pending enforcement matter involving a company that was suing the bank board in the federal courts for Control Fraud. Keating requested that the regulators not take any enforcement actions against his violation of the Direct Investment rule. He literally wanted regulators to “immunise Savings and Loans against the worst violation in a financial institution in US history.”
Keating was responsible for calling the meeting, and the five US senators he recruited received major political contributions as payment for their complicit activity in the corruption and bribery of financial regulators.

The senators attended the meeting without their political aids. The Chief Regulator Chairman Grey was specifically requested not to bring his aids, for the reason of deniability, and intimidation. Five US senators versus one regulator with no aids to back him up: you do the math. And for their attendance and service, each of the five senators received major political contributions from Charles Keating.

The Federal Home Loan Bank Board met with the Keating five a week later. The meeting was designed to deliberately intimidate the board members, putting enormous pressure upon them to ignore Keating’s deliberate perpetration of control fraud. The regulators were asked to withdraw a promulgated regulation; and in return, they were told they would receive “certain benefits” from Savings and Loans.

The regulators recalled in court that Keating specifically said that he was speaking on behalf of Savings and Loan, and on behalf of the five senators. They also recall that McCain did absolutely nothing to distinguish himself, and did not object in any way.

The bank board ceased all legal action against Savings and Loans after continued direct political pressure. Even though they knew that Keating was running a criminal enterprise, Savings and Loans were allowed to run for another two years, resulting in massive losses of over 3.4 billion dollars. It produced the most expensive failure in US history of a depository institution.

Between 1987, and 1989, Lincolns “parent” corporation, American Continental was desperate for cash inflow to make up for losses in real estate purchases and projects. Lincoln’s branch managers and tellers convinced their customers to replace their federally-insured certificates of deposit with higher-yielding bond certificates of American Continental. The Regulators had already judged the bonds to have no solvent backing.

Despite prior knowledge of potential losses, the customers were never properly informed that their new bonds were not insured and that their decision to switch was an incredibly risky decision given the state of American Continental’s finances. FDIC chair L. William Seidman commented later that the Lincoln push to get depositors to switch was “one of the most heartless and cruel frauds in modern memory.”

American Continental went bankrupt in April 1989. Lincoln Savings and Loans was seized by the FHLBB on April 14, 1989. About 23,000 customers were left with worthless bonds. Many investors lost their life savings, and felt betrayed for having been so deliberately deceived. A large proportion of investors were elderly residents of Californian nursing homes.

The total bondholder loss came to between $250 million and $288 million. The federal government eventually became liable for $3.4 billion to cover Lincoln’s losses when it seized the institution.

Regulators filed a $1.1 billion fraud and racketeering action against Keating. Former FHLBB Chairman Gray contacted the media about the five senators’ assistance to Keating. He said that in the meetings that took place during April 1987, the senators had sought “to directly subvert the regulatory process” to benefit Keating.

On September 25, 1989, several Ohio Republicans filed an ethics complaint against Senator John Glenn, charging that he had improperly intervened on Keating’s behalf. The initial charges against the Keating five were made on October 13, 1989 by Common Cause. They requested that the U.S. Justice Department and the Senate Ethics Committee investigate the actions of all five senators and their involvement in the Lincoln failure and examine all contributions received from Keating and whether or not they violated the rules of the Senate or federal election laws.

By November 1989, the cost of the Savings and Loans crisis was $500 billion. All the senators denied they had done anything improper in the matter, and said Keating’s contributions made no difference to their actions.

Keating said to a reporter:

“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.”

Their initial defense was that Keating was “one of their constituents.”

McCain said, “I have done this kind of thing many, many times.”

He said the Lincoln case was like “helping the little lady who didn’t get her Social Security.”

Senator McCain has no one to hide behind. He knew the facts because he was briefed, and he knew just what the consequences would be. Yet he was still happy for American tax payers to pick up the tab. He knew Lincoln Savings and Loans was a criminal enterprise and that what was being done was improper. Instead he did nothing.
Keating wasn’t his constituent. Keating wasn’t the first person whose interests he was employed to protect. The American tax payers were his constituents, and for his greed and corruption, they were the ones who had to pay back the $3.4 billion. “He just – never got it.”

Only three of the five senators were prosecuted for “improperly interfering with the FHLBB in its investigation of Lincoln Savings and Loans”.
The verdict was met with damning accusations of undue leniency. The Senate Ethics Committee did not pursue any possible breach of ethics in McCain’s delayed reimbursements to Keating for trips and holidays paid at Keatings expense, because: “they occurred while McCain was in the House”.
(That McCain was allegedly recieving political favours whilst working in the House is precisely why they needed to investigate him in the first place – but I digress).
Further, the committee said that McCain was not required to amend his existing financial disclosure forms for his years of service in the House, on the grounds that McCain had now “fully” reimbursed Keating’s company.
The House Committee on Standards of Official Conduct said that the verdict lacked jurisdiction because by the time the trial took place, McCain was no longer in the House, and there was no reason to delay an investigation.
Joan Claybrook, President of Public Citizen, called the verdict a “whitewash”.
Jonathan Alter of Newsweek called the Senate Ethics Committee “shameless” for trying to investigate itself and for letting “four of the infamous Keating Five off with a wrist tap.”
The New York Times ran several editorials criticizing the Ethics Committee for having let the senators off lightly.
Many have suspected that the committee deliberately timed its investigations to coincide with the run-up to the Gulf War, in order to minimise its news impact.


McCain’s almost identical reaction to the subprime mortgage crisis – which was unquestionably a product of deregulation, was to move towards even greater deregulation. His recommendations in his first speech after the crisis read:
“Our financial market approach should include encouraging increase capital in financial institutions by removing regulatory accounting and tax impediments to raising capital.”
McCain has little or no interest or knowledge of the economy. His contributions about the current financial crisis are as much lacking in substance as they are in empathy. The melodramatic call to suspend his campaign until the government bail out plan had been released last month – was received as an arrogant, “empty diversionary tactic.”
It’s clear he doesn’t know a whole lot about economics, but he knows just enough about the paramaters of US Law and specific Rules of the Senate Criminal Code, to legitimately get away with one of the most massive executions of white collar crime.

To add insult to injury, he selected Senator Phil Gramm as his financial advisor. Phil Gramm is arguably more responsible than anyone else in Washington for pushing non regulation and de regulation of financial institutions. Even after deregulation was proven to be fundamentally flawed, he made fun of the victims of the sub-prime mortgage crisis, calling concerned Americans “a nation of whiners”.

McCain has picked the worst possible source of advice. He is content to surround himself with corrupt political advisers that will only reinforce his moral bankruptcy and egotism. McCain seems to have convinced himself that he can continue to raise personal financial capital off the backs of the electorate whose interests he was employed to protect.

“If you look at why Lehmann, and Bearsterns, and Meryl Lynch, and AIG, and Fannie and Freddie suffered such massive losses“: it is because all of them falsified their accounting books and were operating in a system that legitimately allowed owners and board members of financial institutions to lie.
This is why we need a regulator like Obama.
This disaster has spread so far that it has reached the other side of the world, all because of corrupt financial corporations that were supported by Washington and Wall Street.
The only countries that survived this crisis were countries like Ireland and China, countries who originally refused to de-regulate their economies in the face of massive US pressure.

From the very beginning, McCain aligned him-self with people he knew to be corrupt for his own personal financial and political gain. He is morally and financially reckless, deluded and still “drinking the cool-aid of deregulation.”

He is unfit to lead.