The Man Who Bought Washington
Jeffrey, Terence P.
Terence P. Jeffrey THE MAN WHO BOUGHT WASHINGTON Say what you will about Charlie Keating, stalwart conservative, friend to U.S. senators, and beleaguered S&L tycoon. At least he never gave a dime...
...Like Gray, he had never been to a meeting where multiple U.S...
...I won't be your broker...
...Reports had been coming in from the bank board's field officers, especially in California and Texas, that massive and risky direct investments by deregulated thrifts could put the Federal Savings and Loan Insurance Company (FSLIC) in serious trouble...
...At various points he: (1) hired a San Francisco-based federal bank examiner, (2) paid a $900,000-peryear salary to an accountant he seduced away from the accounting firm Arthur Young immediately after the accountant had written a highly publicized report giving Lincoln a glowing certificate of good health, and (3) retained as an attorney a former California corporation commissioner who had A devout Roman Catholic, Keating spent his recreational time harassing pornographers and supporting pro-life causes...
...In fact, Frost claims he had personally proposed it to William Seidman, the chairman of the Federal Deposit Insurance Corporation...
...The government kept the door to the federal treasury slightly ajar, and another generation of Charlie Keatings will some day come and pry it open...
...The families flew roundtrip from Phoenix on the ACC corporate jet and stayed at Keating's beachfront estate...
...the chairmanship of Merrill Lynch, the nation's pioneer and leading deposit broker, to enter the administration and had been a Garn-St Germain enthusiast in his days as Treasury secretary...
...When the San Francisco regulators showed up at DeConcini's office on April 9, the original group of four had been augmented by Senator Riegle...
...In 1981, he wept on meeting Mother Teresa in Gallup, New Mexico...
...Frank Annunzio, the Banking Committee's ranking Democrat and the powerful chairman of the House Administration Committee, had unsuccessfully been trying to reach Gonzalez by telephone every day since Congress had reconvened in January...
...and John Glenn of Ohio ($34,500...
...It had lost $716,000 in the previous eighteen months and was still losing money at a rate that would have made it insolvent by March...
...Rollins, however, had talked Regan out of it by promising to deliver the message to Gray himself...
...Taggart later told the San Francisco Examiner that he signed Lincoln's authorization explicitly to beat the deadline...
...We do not wish to make the United States government liable for the mistakes and errors of individual...
...Dennis DeConcini of Arizona ($55,000...
...Gray had hoped to persuade Riegle, who was then heir apparent to retiring Senate banking chairman William Proxmire, to support a bill to recapitalize FSLIC...
...When they do there will be plenty of men like Fernand St Germain, Jim Wright, Dennis DeConcini, Donald Riegle, and Alan Cranston to help them do it...
...Former undersecretary of the Treasury George Gould later told the American Banker that during this period Keating visited him at the Treasury one day to lobby against the 10-percent rule and "ranted and raved that Mr...
...At least he never gave a dime to Ronald Reagan...
...He was right...
...The House version of the bill in question held no increase at all...
...Gonzalez's amendment was one of those he was threatening to denounce...
...On December 10, a new regulation limiting such investment to 10 percent of a thrift's assets finally took effect...
...Keating's boldest headhunting move came in late 1985 when he tried to make Edwin Gray a direct investment...
...A devout Roman Catholic, he pursued such recreational activities as harassing pornographers and supporting pro-life causes...
...He had never met with a senator without staff present...
...I can only ask that a constituent is treated fairly," McCain warned his friend...
...McCain at this point told Gray, "We don't want to do anything improper here...
...Gonzalez, on the other hand, was not only unpredictable, but wacky...
...In February 1985, Greenspan wrote a letter to Thomas Sharkey, Lincoln's principal supervisor in the Federal Home Loan Bank in San Francisco...
...Gonzalez rightly held Wall responsible for allowing Lincoln to continue in business for two years after the San Francisco regulators had recommended a receivership...
...Delegate Walter Fauntroy, a Baptist minister, asked his colleagues to bow their heads in prayer...
...So in the fall, Keating returned to Washington and met personally with Donald Regan at the White House...
...On entering the meeting, Gray confronted not only DeConcini and McCain but also Senators Cranston and Glenn...
...20 THE AMERICAN SPECTATOR FEBRUARY 1990 VT here's a war going on here...
...It was Lee Henkel, ACC's tax attorney...
...At the fundraiser Keating handed Riegle eighty-six checks written by Keating employees and family...
...It too mirrored the deal Keating had mentioned to McCain on March 24...
...But Gray's allegations retargeted the collective artillery of the media away from Wall, who shortly resigned, and squarely on the Keating Five...
...But William Black, the San Francisco bank's chief counsel, took detailed notes...
...The pursuit of prudent public policy was at best an incidental question in the politics that ensued from the Lincoln case and the thrift crisis in general...
...At the end of the meeting, he pulled Gray aside and asked if he would meet with a group of senators who were upset with the way the bank board was regulating Lincoln...
...He told Regan that he knew just the man to straighten out the Federal Home Loan Bank Board...
...But Benston's nomination was a stillbirth due to vehement opposition from Senate Banking Chairman William Proxmire...
...He had entered politics two decades earlier to serve as press secretary to then-television personality Ronald Reagan's 1966 California gubernatorial campaign...
...In his first press conference in 1933, Roosevelt had said, "As to guaranteeing bank deposits, the minute government starts to do that . . . the government runs into a probable loss...
...Gonzalez answered, "To my knowledge it has no implication for the fund, and the specific bank is the Frost National Bank in my area...
...Although Henkel was a Georgia Republican, one of his biggest supporters in the U.S...
...Senate was Dennis DeConcini, the Democrat from Arizona...
...But, nonetheless, on April 2 McCain headed for Senator DeConcini's office to talk with Ed Gray about the bank board's handling of Lincoln...
...Keating advised his old buddy from Bahama beach days that he was willing to make some concessions to the government if the bank board would just lay off Lincoln...
...o-opting bureaucrats became as much a part of Keating's modus operandi as handing out campaign contributions...
...The deal, as described by Gray, was the same one Keating had laid out for McCain nine days before...
...The thrift expanded like a white star on its way to becoming a black hole...
...In 1989, Congress passed and George Bush signed the Financial Institutions Reform, Recovery and Enforcement Act, committing the government to bail out the thrift industry at a cost to taxpayers of up to $300 billion over the next thirty years...
...Gonzalez was already making Republicans on the committee upgrade their assessments of former chairman Fernand St Germain...
...He stomped out of McCain's office, declaring in front of shocked staff that the former POW was a "wimp...
...He told Meese about his conflict with Regan and that he was thinking about sending a personal letter to the President explaining the problems that the thrift industry was facing and why he was following the policy line he was...
...He then lent her a jet helicopter to visit a remote Indian reservation, and reportedly gave her $1 million to help set up a convent in Phoenix...
...So when Gonzalez- offered his private amendment to the thrift bailout, it came as a complete but characteristic surprise on both sides of the hearing room...
...As Adams puts it: "As profits vanished, thrifts began dipping into their capital, the money originally put up by the investors and owners when the thrift was formed...
...In March, Frank Annunzio, Henry Gonzalez's erstwhile nemesis who had also taken a $1,000 contribution from Keating, introduced a resolution condemning the 10-percent rule...
...A World War II fighter pilot and Pan-American gold medal swimmer (1944), he had spent his middle years amassing millions by building expansive new neighborhoods in the deserts surrounding Phoenix, Arizona...
...McCain again followed DeConcini by announcing, "I wouldn't want any special favors for them...
...It pointedly reiterated the allegation that Senator DeConcini, in the presence of three other senators, had offered him a "quid pro quo" on Keating's behalf...
...Could the chair explain which bank...
...Other than McCain, the major recipients included Senators Donald Riegle of Michigan ($71,250...
...Chalmers Wylie of Ohio, the committee's ranking Republican, told Gonzalez he would agree to the amendment "as long as we have report language that this amendment would apply to only one bank...
...Democrats, meanwhile, struggled mightily to exploit Wall's disgrace by heaping blame on the Reagan-Bush Administrations for the still-escalating cost of the thrift crisis...
...On March 23, 1987, for example, Keating hosted a fundraiser for Senator Riegle at ACC's Hotel Pontchartrain in Detroit...
...Michael Patriarca, the San Francisco enforcement chief, responded: "We're sending a criminal referral to the Department of Justice...
...So Keating now put Alan Greenspan (the current chairman of the Federal Reserve) on the payroll...
...Gonzalez repeated, "The FDIC has no objection to this whatsoever...
...From the end of 1983 to 1988 its on-paper assets exploded from $1.1 billion to $5.5 billion...
...In July 1985, Gray was approached by an old friend, John Svahn, who was then serving as assistant to the President for policy development...
...Meanwhile, the FDIC informed the banking chairman it could not absolutely guarantee that his amendment would help only his friend's bank...
...In addition, from 1984 to the present, Keating, his family, and employees of Lincoln and ACC made $101,500 in contributions to McCain's House and Senate campaigns...
...Another senior Democrat privately admitted that the only way he could talk to the chairman was to stalk him like a common journalist through the subterranean corridors of the Capitol...
...The resulting Garn-St Germain Act maintained both federal deposit insurance and the $100,000 limit on insured deposits...
...They totaled more than $70,000...
...Rollins told Gray that Regan had been planning to demand Gray's resignation personally...
...Seidman told Frost he thought it sounded reasonable and suggested he have his attorneys contact the attorneys for the FDIC...
...The members, as much in surprise as piety, sat in absolute silence as Fauntroy, who holds no vote, invoked the Almighty...
...A predictable torrent of publicity about Gray's allegations followed the day's testimony and with that flood the course of events was irrevocably swept beyond the reach of Henry Gonzalez...
...He did not mention that Tom C. Frost, the bank's owner, had been a friend and campaign contributor for more than twenty years...
...The next day Gray went over to the Justice Department to see another old pal, Ed Meese...
...DeConcini started the meeting apparently following a set of guidelines from a memo prepared by his aide Laurie Sedlmayr...
...Raiden and Gray agreed that it looked as if Keating was trying to buy him off the bank board...
...On the morning of November 11, Gonzalez planned to take sworn testimony from Ed Gray in what was described as a public hearing...
...But DeConcini continued for two more years to lobby for Keating with the Federal Home Loan Bank Board and California thrift regulators, and within weeks Cranston was soliciting Keating for the first installment on the $850,000 in soft money mentioned above...
...Cranston's voter registration drives, which blatantly targeted only potential Democrats, are now under investigation by the IRS...
...The shares are now worth approximately 90 cents apiece...
...His Phoenix-based real estate company, American Continental Corporation (ACC), started looking to buy one, and in 1984 paid $51 million for Lincoln...
...At this point Congress intervened again...
...Ed Zchau...
...Keating also gave $85,000 to the California Democratic party in 1986 to help subsidize Cranston's efforts in an extremely tight re-election campaign against Rep...
...Glenn, who had entered the room late, summed up his position, "You should charge them or get off their backs...
...If he could not beat them, he would buy them...
...In August 1986, Lawrence Taggart, the former California thrift commissioner whom Keating had helped, wrote to Donald Regan claiming that Ed Gray's conduct as chairman of the FHLBB was "likely to have a very adverse impact on the ability of our Party to raise campaign funds in the upcoming elections...
...A study done by bank board economists later revealed that there was only one other thrift that might have benefited from the change...
...Regan's, and that his credentials as the President's personal friend might be even stronger...
...Before the thrift bailout came up on the House floor in June, Congressman Leach let it be known that he was going to offer an amendment stripping all special interest riders from the bill...
...McCain had already severed his when Keating had stomped out of his office crying "wimp...
...He seemed like a solid citizen...
...He then told the senators that as chairman of the bank board he was not personally familiar with the details of the Lincoln case...
...Instead he pumped $850,000 into three voter-registration organizations founded by Alan Cranston, the favorite senator of the People for the American Way...
...Keating flattered McCain on his war record and told him he was the kind of man he would like his family to get to know...
...The next day Riegle flew out to Phoenix with Banking Committee staffer Kevin Gottlieb to talk with Keating...
...A meeting was later arranged for the following week...
...Gray had provided the committee with written testimony...
...A personal letter to Ronald Reagan might as well have been a letter to Donald Regan...
...He asked Rollins if he would be able to get the personal postal code that when en-scribed on an envelope allows a letter to pass straight through to the President...
...Rollins said he thought he could get it for him...
...Glenn asked, "Have you done anything about these violations of law...
...But he was not the only one who came nervous...
...Two weeks later, Lincoln revitalized TCS by purchasing 587,000 shares in the company for $5 apiece, even though the stock's prospectus boldly warned: "The public offering price of $5 was determined arbitrarily by the Board of Directors...
...On January 1, 1985, Taggart resigned as the state thrift commissioner and became TCS's chief executive officer...
...The letter requested that Lincoln be exempted from the 10-percent rule...
...Keating signed a consent decree neither claiming innocence nor admitting guilt but promising never to do it again...
...Frost's lawyers drafted the language, it was "massaged" by the FDIC's lawyers, and then Frost handed over his do-it-yourself amendment to Kelsay Meek, an "old friend" of his who happened to be Gonzalez's staff director on- the Banking Committee...
...senators confronted a federal regulator...
...In 1980, at a late-night banking conference the Senate was trying to get the House to agree to lift the cap on federally insured deposits from $40,000 to $50,000...
...They screened his private mail...
...Greenspan asserted falsely that Lincoln had put a "high percentage" of its business into residential mortgages, and concluded that Keating, "through skill and expertise," had transformed the thrift "into a financially strong institution that presents no foreseeable risk to the Federal Savings and Loan Deposit Insurance Corporation...
...Each summer from 1984-86, after McCain was elected to the House, Keating invited the congressman and his family on vacation trips to the Bahamas...
...livice he had stood in the well of the House and with soulful solemnity introduced resolutions calling for the impeachment of Ronald Reagan...
...How could we be singling out one bank...
...At the time TCS was in bad financial shape...
...This time he suggested "forbearance" for Lincoln...
...T n some cases, the timing of a Keating contribution was more incriminating than its sheer volume or the nature of the account into which it was paid...
...H is plan to stack the bank board foiled, Keating reached for a higher trump card: the United States Senate...
...In 1981, at a Navy League dinner in Phoenix, he had introduced himself to John McCain, a former Navy pilot who had spent five and a half years in a North Vietnamese Greenspan asserted falsely that Lincoln had put a "high percentage" of its business into residential mortgages, and concluded that Keating "through skill and expertise" had transformed the thrift "into a financially strong institution . ." THE AMERICAN SPECTATOR FEBRUARY 1990 19 prison camp, and who was now a potential Republican candidate for the House...
...Had an ordinary American stumbled into the building that day, he might have thought 011ie North was making an appearance, or that the House Un-American Activities Committee had finally reconvened...
...In 1979 the Securities and Exchange Commission had accused him and a partner of fraudulently converting the assets of a real estate company to their personal use...
...St Germain, whose political style made ousted Speaker Jim Wright look open-minded and openhanded, had been thrown from office himself the previous November by a Rhode Island constituency after the FBI had forced the House ethics committee to reopen an investigation into his financial dealings...
...Some fifty S&Ls had failed, a shocking number for the time...
...Before the year was out he hatched his own strategy for dealing with the "reregulators...
...Still, McCain may be the least indebted of the politicians Keating attempted to enlist as allies in his struggle against the Federal Home Loan Bank Board...
...Rollins answered, "Regan...
...But House Banking Chairman St Germain unexpectedly suggested a "compromise" limit at $100,000 and the Senate conferees quietly gave in...
...Now DeConcini was presenting the San Francisco regulators with more or less the same bargain...
...Because thrifts had been limited to making home mortgages, which generally brought back fixed interest rates over 20- and 30-year terms, the 1980 legislation put the industry in an economic squeeze...
...Two vacancies were coming up on the three-member board and Keating had some candidates in mind...
...Each group had been carefully segregated into special seating sections laid out by Gonzalez's crack crew of press flacks, who scurried back and forth frenetically handing out massive folios of xeroxed evidence...
...There was nepotism too...
...Some of their antipathy was motivated by jealousy for his position, some by the hatred the thief always harbors for the (relatively) honest man, and some of it was well justified...
...It just doesn't compare," she said, "to the Charles Keating affair...
...On seeing the above story in the Washington Times, an experienced Capitol Hill reporter mockingly dismissed it...
...Although an ACC spokesman flatly denies it, bank board officials have repeatedly asserted that Lincoln had even backdated and stuffed files attempting to create retroactively an underwriting history for some of its biggest ventures or to mislead the bank examiners about the actual date of a direct investment...
...The first man Regan considered nominating was George Benston, an economist who had been hired by Lincoln to assist Alan Greenspan in pressing Keating's case against the bank board with Congress...
...He runs about 80 percent of this place now...
...By 1984, when he applied to purchase the Lincoln Savings and Loan Association of Irvine, California, there was only one blotch on his record...
...Such offering price bears no relationship to the actual value of the company's assets...
...Four of them went to its own employees...
...federally insured S&Ls could then offer depositors...
...Most of this growth was focused in what federal bank examiners call "risk assets": raw land, new construction loans, hotels, and junk bonds...
...Now, vested with a major chairmanship, he ran committee hearings in a stream-ofconsciousness monologue that wavered erratically from poetic elegance to slapstick solecism...
...The limit was a direct threat to Keating's plans for Lincoln...
...But when the exam was completed in October, the San Francisco Home Loan Bank concluded that Lincoln had made at least $600 million in illegal direct investments and that the underwriting for these investments was either severely deficient, nonexistent, or fraudulent...
...As many as 224 other congressmen rushed to cosponsor the Annunzio amendment, which was being touted by Keating's personal lobbyists...
...Keating once said of ACC's corporate contributions, "We support and campaign for the political leaders we believe represent the best of American virtues...
...It was back to business as usual in one of the most fractious committees on Capitol Hill...
...From 1985 through early 1986, even though it was located in one of thefastest growing housing markets in the country, the thrift made only eleven home loans...
...Once again there were no staff present...
...At the time, Greenspan was an economic adviser to President Reagan...
...The regulators then told the senators about Lincoln's file stuffing and backdating...
...Gray protested but Riegle was persistent...
...Jim Leach, a reformist Iowa Republican with a Princeton patois, interrupted Gonzalez...
...Not maybe, we're sending one...
...In 1985, at twenty-six, he was taking down $866,647...
...C harles H. Keating was a paragon of paleoconservative virtue...
...On December 7, 1984, he signed a state order authorizing Lincoln to make $800 million in direct investments...
...Keating flew into a rage...
...But then Annunzio took exception...
...Keating contributed far more in "soft money," which included direct gifts from American Continental and Lincoln S&L that would have been illegal if given directly to organizations aimed at "influencing a campaign for Federal office...
...But the $2.9 million Keating invested in Taggart's TCS was just the down payment in his checkbook war against Ed Gray and the 10-percent rule...
...But Keating's boldest headhunting move came in late 1985 when he tried to make Ed Gray a direct investment...
...Douglas Barnard, a Georgia Democrat who would receive $16,000 in campaign contributions from Keating family and employees...
...But Keating and Regan would soon openly join hands in another campaign to get Ed Gray...
...Savings and loans competed for capital by offering higher and higher interest rates, but their returns from mortgages remained constant...
...For Keating, the adamant campaigner against pornography and abortion, this presumably meant Reagan-style conservatives...
...Gray asked, "Well, who's in charge here...
...Henkel formally recused himself from the bank board's dealings with Lincoln, but at the first board meeting he attended he proposed an amendment to the 10-percent rule that would have legalized Lincoln's disputed investments...
...According to Gray, DeConcini promptly offered him a "quid pro quo" on behalf of the senators' "friend at Lincoln Savings and Loan...
...In mid-1984, Gray started studying the possibility of imposing a regulatory limit on direct investments...
...When Tom Frost was asked thissame question by the Washington Times, he denied that the amendment singled out one bank...
...While the bank board was reviewing Lincoln's application for an exemption, Greenspan testified in Congress against the 10-percent rule...
...The early 1980s were vintage years for real estate speculators looking to get into the savings and loan business...
...In September, Washington attorney Raymond Gustini telephoned bank board member Mary Grigsby and told her that Lincoln was interested in hiring Gray...
...By comparison, Lincoln virtually stopped making mortgages...
...I can't tell you strongly enough how serious this is...
...Gray would be the death of the industry...
...Lincoln started offering high interest rates and soliciting national brokers like Drexel Burnham Lambert and Merrell Lynch...
...Charlie Keating liked the smell of California's "deregulated" savings and loans...
...Gray went to the meeting with trepidation...
...Nor did the authorization give Lincoln the right to make future direct investments...
...Henry described it erroneously in that markup hearing," he said...
...Grigsby told Gray, who referred the matter to the bank board's general counsel Norman Raiden...
...From the hearing room's front wall, over Gonzalez's shoulder, a larger-than-life portrait of Fernand St Germain looked down on the proceedings...
...A year later the California state legislature went even further, knocking down all fences and letting thrifts chartered in the state directly invest up to 100 percent of their assets...
...Congressmen do those THE AMERICAN SPECTATOR FEBRUARY 1990 17 kinds of favors for friends all the time," he said...
...Whatever the thrift lobby wanted, it got...
...W hen the House Banking Committee met last April to begin marking up the $300 billion thrift industry bailout bill, D.C...
...Gray asked Rollins if the President knew anything about what was going on...
...Keating swore to Gould that he was willing to pay Gray, who earned the same salary as a congressman, up to $300,000 a year to get him off the bank board...
...18 THE AMERICAN SPECTATOR FEBRUARY 1990 just approved ACC's request to sell uninsured bonds in the lobbies of three Lincoln branches that happened to be located in retirement communities...
...But that was not the point...
...Gray decided that he would not resign unless he determined it was the will of the President himself...
...In Keating's version of the meeting, Keating changed his mind about offering Gray a job when Fairbanks insisted that Gray would only be interested in a chairmanship or chief executive officer position...
...The contribution was arranged by James Grogan, a former Glenn aide who had moved up to an executive position at ACC...
...The thrift stonewalled, refusing to give examiners access to necessary documents...
...What Keating did not tell Regan was that Henkel was a partner in a few real estate deals that held approximately $60 million in loans from Lincoln...
...This nest egg provided the first line of defense against losses...
...But paying taxes would not have been sufficient credentials to get him through the door to see the show...
...They liked Charlie Keating...
...The same auspicious bill also created a commission to phase out limits on the interest 'John Wiley & Sons, $19.95...
...John Glenn, the seemingly straight-shooting hero of The Right Stuff, also took $200,000 in Keating soft money which was funneled into an Ohio bank account that was not registered with the Federal Election Commission...
...Does it have any implications for the insurance fund...
...But even as he was being ostracized at the Treasury, Keating gained an ally a few steps away in the White House...
...Just two weeks before this $70,000 hand-off in Detroit, Ed Gray had visited Riegle at his Capitol Hill office...
...Terence P Jeffrey is an editorial writer for the Washington Times...
...Gray explained to DeConcini that he thought the proper course for the bank board was to fight Lincoln in court, and he abruptly declined to make a deal...
...I oppose your amendment," he told Gonzalez, "and I am sorry that I must . . . [but it] comes at a bad time in the discussing of this bill...
...The amendment had been written to help an entire class of banks in the same situation as Frost's...
...Keating's son, for example, had risen from bus boy at a country club to a director of Lincoln's parent, ACC, in just a few years...
...All seats had been reserved for the nomenklatura...
...In September, Gray was summoned to the White House by another old friend, Ed Rollins, who was that day retiring as a special assistant to the President...
...When the California Department of Savings and Loans reviewed Keating's application to purchase Lincoln, he promised the state commissioners that he would retain the association's officers and run the thrift as a traditional home mortgage lender...
...But no serious thought was given by either Republicans or Democrats to eliminating the root cause of the problem, which remained Roosevelt's deposit insurance...
...Despite the promises Keating made to the state's savings and loans commissioners, he promptly turned the thrift into a machine for generating federally insured brokered deposits that he could convert into venture capital for his Arizona holding company...
...As James Ring Adams has written in his new book The Big Fix: Inside the S&L Scandal,' a series of remarkably imprudent acts of Congress had created a situation where real estate developers could buy thrifts and use their federally insured deposits directly to finance high-risk ventures...
...The day after Riegle's fundraiser at the Pontchartrain, Keating had shown up at Senator McCain's Washington office...
...Gonzalez had literally excommunicated many senior Democratic colleagues...
...Opportunistic Republicans began to wonder if the career of Sen...
...There will also be little men like Henry Gonzalez, who pride themselves on being populists, but insist on tagging special interest amendments for banker friends even onto $300 billion bailout bills...
...According to an extensive study undertaken by the Los Angeles Times, Keating, his family, and seventy-five business associates made more than $700,000 in campaign contributions to state and federal politicians between 1984 and 1989...
...The San Francisco bank examiners finally concluded in May 1987 that Lincoln was being operated in an "unsafe and unsound manner" and recommended to the bank board that it be taken into a federal receivership in order to protect FSLIC from massive losses...
...They were merely kindred spirits...
...On April 2, Gray was summoned to a meeting at Senator DeConcini's office and warned to come alone...
...There might be a few others out there," FDIC legislative liaison Alice Goodman told a Gonzalez staffer...
...Svahn told Gray that in a June meeting with Donald Regan, the President's chief of staff had announced, "I want Ed Gray out and I want him out soon...
...banks, and put a premium on unsound banking in the future...
...Keating responded to the devastating exam by attempting to stack the Federal Home Loan Bank Board itself...
...Meese told him not to do it...
...Henkel was subjected to an ethics review that cleared him of wrongdoing, but he resigned on April Fools' Day 1987 anyway...
...M eanwhile in Washington, Edwin Gray, chairman of the Federal Home Loan Bank Board, launched a regulatory counteroffensive...
...I don't want any part of our conversation to be improper...
...By 1982, on an industry-wide average, capital was nearly exhausted...
...The resulting investments put the thrift $600 million above the 10 percent federal limitation that was to take effect three days later...
...The notes are so accurate, in fact, that some of the senators now believe Black used a hidden tape recorder...
...There is no evidence that at this point Charlie Keating and Donald Regan had ever met...
...The "affair was similar in many ways," Gray opined, to the efforts former Speaker Jim Wright had made to intimidate him into laying off insolvent Texas thrifts...
...But St Germain had the one redeeming quality of a traditional pol: he was perfectly predictable...
...He warned Regan that it was necessary to appoint new board members who would counteract Gray's anti-business ideology...
...Nor had he ever met a federal regulator without staff present...
...1. That is the way one Banking Committee staffer described the committee's internal politics this past fall as a series of hearings probing the $2.5 billion collapse of Lincoln Savings and Loan began drawing to a climax...
...But it loosened the leash that had tethered thrifts to the mortgage business and allowed them to gambol forth into direct investments like junk bonds and real estate developments...
...McCain never reimbursed Keating for the trips or a number of domestic flights until May of last year...
...But Riegle had other business in mind...
...0 Lord, Fauntroy said, deliver us from parochialism, help us resist special interest legislation, lead us to do what is truly right for the nation as a whole...
...Before Leach could offer his amendment, Gonzalez offered one of his own: he stripped his favor to Torn Frost from the thrift bailout package...
...Gould responded by making sure Keating was declared "persona non grata" at the Treasury Department...
...But the bank board still refused to grant Keating an exemption...
...He had reason to believe his Reaganite credentials were at least as good as Donald...
...But a few months later Roosevelt signed the Glass-Steagall Act creating the FDIC, and a year after that pushed through the National Housing Act that established FSLIC...
...The disgust some senior Democrats harbored for Henry Gonzalez bubbled forth in public bursts of barely tempered rage...
...Even before purchasing Lincoln, Keating had spent time and money cultivating a group of congressmen in both parties...
...Regan had left...
...Glenn's organization is subject only to the tax code and the laws restricting fraud...
...This time it addressed only half the problem...
...The San Francisco regulators then tried to summarize Lincoln's problems: more than half a billion in illegal, risky direct investments, bad or even nonexistent underwriting, suspect accounting...
...Rollins said, "I'm sure he doesn't...
...Gonzalez had taken aim at the Federal Home Loan Bank Board's handling of the Lincoln case hoping to shoot down M. Danny Wall, the former Republican staff director of the Senate Banking Committee who had replaced Ed Gray as chairman of the bank board in July 1987...
...Taggart's direct investment authorization was not recognized by the bank board as automatically exempting Lincoln's $800 million from the federal government's restrictions...
...The FDIC actually thought the amendment was good policy...
...Many other Keating family members had similarly massive salaries...
...A moment later, the committee chairman, Henry B. Gonzalez of Texas, recognized himself and offered up a special amendment aimed at helping a single San Antonio bank...
...I n March 1986, the Federal Home 1. Loan Bank in San Francisco sent a team of examiners for a routine review of Lincoln's operations...
...A socialist bitter ender, Gonzalez also hoped to discredit free enterprise generally, which he seemed to equate with a thrift industry run on government-guaranteed capital...
...But Keating never contributed a dime to Ronald Reagan...
...McCain had been hearing from his staff that Keating was looking to cut a deal with Ed Gray, and as the 6-foot-5 entrepreneurial John Wayne draped himself over a chair in the senator's- inner office, McCain feared he was about to hear the details...
...That revelation persuaded Glenn and Riegle summarily to cut all their ties to Charlie Keating...
...According to FEC spokesman Fred Eiland, there are no federal election laws that limit how Glenn can spend Keating's $200,000 gift...
...He told them that if they wanted to be briefed on the matter he could arrange for them to meet with regulators from the San Francisco Federal Home Loan Bank...
...Alice Goodman at the FDIC concurred...
...Lawrence Taggart, the California Savings and Loan Commissioner who had failed to check Keating's SEC record before approving his purchase of Lincoln, became the first government official to benefit from Keating's generosity...
...Republicans as right as Toby Roth seemed strangely reborn as partisans of a chairman whose "liberal" rating from the ADA is 100 percent...
...But before Keating could mention a salary figure, Fairbanks told him Gray was not interested...
...According to papers filed with the Securities and Exchange Commission, when Taggart signed that authorization he had already been hired by a company called TCS Financial...
...John McCain might not be an acceptable price to pay for taking out four Democratic senators...
...The committee's hearing room in the Rayburn Building was packed with print reporters, SEC officials, FBI agents, officers of the Federal Home Loan Bank Board, correspondents from radio and television, and superfluous committee staffers...
...But these dollar figures include only those contributions that went to the senators' "principal campaign committees," which by law must be publicly reported to the Federal Election Commission in Washington...
...Henkel was given a recess appointment and joined the bank board in November 1986...
...And he never even gave any soft money to John McCain...
...As James Ring Adams writes in The Big Fix, the first politician to sell out on the issue of federal deposit insurance had been Franklin Delano Roosevelt...
...She was right...
...Alan Cranston of California ($39,100...
...DeConcini responded, "What's wrong with this if they're willing to clean up their act...
...Thesesoft money contributions were channeled into state and national party organizations, political action committees chartered by states, and ostensibly non-partisan, tax-deductible voter-registration drives...
...Many Democrats on the committee just plain hated him...
...Gonzalez had made a deal with Chalmers Wylie to approve the amendment on the assurance that it would help only one San Antonio bank, and now Leach was going to embarrass the chairman publicly on the most important banking bill of the decade...
...The memo laid out "What American Continental wants from Gray for concessions" and "What American Continental is willing to do...
...The testimony was taken in a Government Operations subcommittee chaired by Rep...
...At the meeting Keating told Fairbanks he wanted to hire Gray as a public relations officer...
...To confirm the point, Gray had his assistant Shannon Fairbanks arrange a personal meeting with Keating...
...The commissioners never checked his record with the SEC...
Vol. 23 • February 1990 • No. 2
