Sen. John McCain likes to say that the “appearance of impropriety” created by his intervention on behalf of Charles Keating, a wealthy benefactor who was under investigation, propelled him to become a campaign finance reformer, a truth teller, a straight talker who’s above politics.
But the Keating Five scandal is a whole lot more than that. It uncannily resembles the current banking meltdown and bailout.
Back in the 1980s, McCain was a nondescript member of Congress representing Arizona, and Phoenix developer Charles Keating Jr. ran Lincoln Savings and Loan. Keating’s S&L was enjoying the benefits of President Reagan’s deregulation policies and investing in risky commercial real estate ventures with its depositors’ savings.
Federal regulators wanted to rein in Keating, but five senatorsincluding now Sen. McCainmet twice with regulators on Keating’s behalf in April 1987. Lincoln Savings and Loan ultimately collapsed in 1989, requiring a $2.6 billion taxpayer bailout. Investors lost about $285 million.
Later, McCain said he regretted attending those meetings on behalf of a constituent. But Charles Keating was not just any constituent.
Keating raised $112,000 for McCain during his 1982, 1984 and 1986 campaigns. “But campaign contributions were not all of it,” wrote David Brock and Paul Waldman in Free Ride: John McCain and the Media. “After his 1982 victory, McCain and his family made at least nine trips on Keating’s dime, three of which were to Keating’s own home in the Bahamas. McCain never disclosed the trips, as House rules required, until the scandal came out into the open in 1989.”
What’s more, McCain’s family also personally profited from Keating’s business dealings.
Cindy McCain and her father, Jim Hensley, invested $359,100 in a strip mall owned by Keating in 1986, just a year before McCain tried to intervene with federal regulators on Keating’s behalf.
“Cindy McCain and Jim Hensley would eventually reap between $100,000 and $1 million from the deal,” Brock and Waldman wrote. “McCain was adamant that he ‘in no way abused’ his office.”
(The authors note that in 1989 The Arizona Republic reported the revelations this way: “Sen. Hothead came out in all his glory. ‘You’re a liar,’ McCain snapped Sept. 29 when a Republic reporter asked him about business ties between his wife and Keating. ‘That’s the spouse’s involvement, you idiot,’ McCain said later in the conversation. ‘You do understand English, don’t you?’”)
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Still a Deregulator
McCain was given a slap on the wrist for his support of Charles Keating, and he’s since claimed the scandal was a turning point in his public career, transforming him from your run-of-the-mill seemingly corrupt senator into a crusader for campaign finance reform.
But how much has McCain changed? He’s still cozy with wealthy Wall Street types and he’s still in favor of the kinds of deregulation that led to Lincoln Savings and Loan’s demise.
While the current economic mess has unfolded, it’s been revealed that his top aide’s company has received payments from Freddie Mac as recently as last month. And at least 83 of McCain’s advisers or fund-raisers have recently lobbied on behalf of just about every investment bank, securities firm, insurance company or hedge fund there is. More damning is McCain’s support of deregulation of the financial industry. Former Sen. Phil Gramm, a good friend and initial architect of McCain’s economic plan, is largely responsible for the deregulation spree that led to the current crisis, and he’s still largely responsible for McCain’s economic proposals.
Reviewing McCain’s actions of the past few weeks, it’s obvious that the candidate did not learn the crucial lessons of the Keating Five scandalthat financial institutions need to be closely regulated so that they don’t act irresponsibly with investors’ savings and assets.
If McCain had truly changed because of his Keating Five scandal, he would have pushed for more oversight and regulation of Wall Street during the past 20 years, instead of supporting those who contributed to the problem.
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