Thursday, September 18, 2008

John McKeating Five

Joseph Romm has an article in Huffington Post today about why The Keating Five Story must be told. Here are some excerpts, starting with a few minutes of an interview with David Sirota on The Rachel Maddow show yesterday:

Partial Transcript:
SIROTA: [McCain is] an ideological conservative who is against regulation. So for him to now run out there and say that he's suddenly the guy who's going to regulate the economy and regulate Wall Street is beyond absurd. And I think we have to look at his history. Let's remember that McCain's formative economic experience was in the last crisis, the S&L crisis where he was one of the Keating Five. In that scandal he was somebody who used his Senate position to effectively intervene and press regulators to not get involved and regulate that scandal.
MADDOW: Well, is there a risk as this economic debacle that we are involved in right now starts to resemble the S&L scandal that the Keating Five issue is actually going to be on the table? Obama and Biden have stayed away from it thus far. Some outside groups have touched on it in a very minor way but I think 99 out of a 100 Americans would have no idea what the Keating Five was or what John McCain's role was in it.
SIROTA: ... I think older Americans might remember the S&L scandal. I think explaining that McCain was involved in that scandal, used his office in that scandal again to press regulators to get out of that scandal, to not essentially regulate the financial industry. It's completely relevant. It's completely important because it's the last example that we have, it's actually the only example that we have, of what John McCain would do with a public office with a crisis like this.


OK, for those of you who are not "older Americans", here's a wiki-link to the Keating Five story. Keating was the chair of Lincoln Savings and Loan Association of Irvine, California, and he "ultimately served five years in prison for his corrupt mismanagement of Lincoln." Lincoln had become "burdened with bad debt resulting from its past aggressiveness, and by early 1986, its investment practices were being investigated and audited" by the Federal Home Loan Bank Board (FHLBB) over whether it had violated rules limiting certain kinds of risky, direct investments. "Lincoln directed FDIC-insured accounts into commercial real estate ventures. By the end of 1986, the FHLBB found that Lincoln had $135 million in unreported losses and had surpassed the regulated direct investments limit by $600 million."

The core allegation of the Keating Five affair is that Keating had made contributions of about $1.3 million to various U.S. Senators, and he called on those Senators to help him resist regulators. The regulators backed off, to later disastrous consequences. In 1991, the Senate Ethics Committee found that McCain had exercised "poor judgment" for meeting with federal regulators on Keating's behalf. Others members of the Keating Five were found to have acted improperly. Many independent observers thought all five got off lightly, especially McCain, who had far closer ties to Keating than the others:

McCain was the closest socially to Keating of the five senators.... Between 1982 and 1987, McCain had received $112,000 in political contributions from Keating and his associates. In addition, McCain's wife Cindy McCain and her father Jim Hensley had invested $359,100 in a Keating shopping center in April 1986, a year before McCain met with the regulators. McCain, his family, and their baby-sitter had made nine trips at Keating's expense, sometimes aboard Keating's jet. Three of the trips were made during vacations to Keating's opulent Bahamas retreat at Cat Cay.

McCain acted unethically back then and he is acting unethically today with his dishonest and dishonorable campaign. McCain sided with his fat cat contributors back then, and he's doing it again today. McCain's incredibly close ties with Keating foreshadow his incredibly close ties with lobbyists today, especially with the oil industry, whose polluting policies McCain flip-flopped to embrace this year and whose lobbyists McCain now has running his campaign.


A personal note: As Washington Mutual goes on the auction block today, I'd like to tie that back to the Keating Five S&L scandal, if as an "older american" I can remember the sequence. In 1987, I funded a small IRA account with Citicorp. As the S&L scandals grew, many S&L's (not just Lincoln) failed. Many others were merged with larger banks, just as is happening today. These failures were so numerous that for years there was a special line on federal tax returns allowing deductions for depositor savings you might have lost during the S&L shake-out.

During that time, Citicorp was chopped up and some of its depositor money, including my small IRA account, was absorbed by Great Western Savings. As the S&L debacle wore on, Great Western ended up being gobbled up by Washington Mutual. Right from the start, I never cared for WaMu, mainly because all their local branches were so sleezy. But you know how it goes. An individual pension account can sit there for years. You don't really have any contact with it until you start withdrawing from it. And since moving a pension account is not that simple, I didn't see any real reason to mess with it.

So here I am today, looking at my Washington Mutual account and wondering if it will make it through yet another merger or if this time I will get stung. I think it'll be fine because it doesn't exceed FDIC limits, and at this point the FDIC reserves are still adequate. But I'm very worried what will happen when the FDIC reserves are simply gone. It won't take too many more bank failures for that to happen. $50Billion is chump-change these days.

And I don't think simply printing more treasury securities is going to fool anybody either. It will add to our already scary inflation. People needed a wheelbarrow full of money to buy a loaf of bread in Germany in the 1930's. And we all know where that led.


Fran said...

Oddly enough, in the last few months, I have been receiving WAMU solicitations every week. I've never been a customer, never felt compelled to, but now here they are in ruins of sort. I do think we are just seeing the beginning, because if all these major companies are in meltdown mode, you just know there will be repercussions, a trickle down & out effect.
It is most important for us to remember & or learn of McCain's "experience" with finances-tainted.
His fundamentally sound comment just showed us how fundamentally WRONG & out of touch he is.

Still I just posted questions about the whole matter on my blog. To quote the prezzzzident, it seems like *Fuzzy Math* to me.

D.K. Raed said...

One of the reasons I distrusted WaMu was that at every point of contact they were always pushing you to get into their "higher-earning" investments. But they were a little sneaky about it, kind of glossing over the fact that these were not FDIC-insured accts (that's why they paid higher interest). A lot of banks have been doing this for years, but WaMu was especially pushy. I'm glad I always tuned them out.

And of course you are right, the trickle down effect is alive and well. We will all feel this, in ways we've never had to consider before. Ain't fundamentals grand?

Mauigirl said...

As an "older American" I too have a pretty clear remembrance of the Keating Five scandal. We must get this out there and force the mainstream media to refer to it. I hope it can be brought up in one of the debates, somehow. That would be great. I wonder if anyone will have the nerve to ask about it.

Fingers crossed that the FDIC doesn't go down the tubes. I heard on the radio this morning something about it, reassuring people that if they have less than $100k they are covered, and that over the past 75 years since the FDIC has existed, no one has lost a single dollar from an eligible FDIC insured account. Of course, there is always that first time... Let's hope it doesn't come to that!

D.K. Raed said...

It's up to us to make sure people don't forget The Keating Five. It would be a show-stopping debate question -- which is probably why we won't see it asked. Maybe Obama can find a way to insert it into one of his responses.

Unless something changes & stablizes very soon, I think we are looking at a bankrupt FDIC by next year. BTW, I left you an investment advice comment in a post below. I'm down to about a 10% stock position in my pension funds -- a sure sign of a truly scared person.

Mariamariacuchita said...

Thank you for this. I try to catch her show, but was out when this was aired. She is so focused. Wouldn't you love to see Rachel run for something?

Ingrid said...

DK, your personal story ought to be on top. That is the one that shows the practical, actual effect of these things..that was a great 'aside' that shouldn't be an 'aside'..perfect example I should say!


D.K. Raed said...

Didn't mean to ignore you, but got caught up in my own drama ... Rachel has my vote for whatever she might run for.

There I go, burying my lead again! I'll do a future update on how WaMu's takover by JPMorganChase affects me once I know details. I really wonder who is next. This thing is far from over.