by midtowng | 8/31/2008 02:23:00 AM
On October 22, 1990, Senator Bob Dole came to the defense of his friend, John McCain, with what has become a very familiar refrain.
Referring to Mr. McCain's being a prisoner of war in North Vietnam for five and a half years, Mr. Dole said: "He has been held hostage before under very difficult circumstances. So let us not keep him hostage here in the Senate."
You see, John McCain was being tortured by the Senate Ethics Committee just like the North Vietnamese did. Or something like that.

Uh, right.

Charles Keating first became involved in politics in 1969, when he was appointed by President Richard Nixon to the President's Commission on Obscenity and Pornography. Afterward he directed several failed attempts at censoring movies and books.
He broke into the banking industry in 1972 with American Financial Corporation. In 1984 they purchased Lincoln Savings and Loan. The purchase happened just as Congress began hearing calls for re-regulating the savings and loan industry.

In order to head off the re-regulating talk, Charles Keating hired an up-and-coming economist named Alan Greenspan to review Lincoln Savings assets. Greenspan, also an opponent of government regulation, gave the bank a glowing review. Greenspan recommended that Lincoln Savings be exempt from any new regulation.
Mr. Greenspan described Lincoln's management as ''seasoned and expert in selecting and making direct investments,'' as having a ''long and continuous track record of outstanding success in making sound and profitable direct investments,'' as succeeding ''in a relatively short period of time in reviving an association that had become badly burdened by a large portfolio of long-term fixed-rate mortgages'' and that it had ''restored the association to a vibrant and healthy state, with a strong net worth position."
Nevertheless, Edwin J. Gray, chair of the Federal Home Loan Bank Board (FHLBB), for some reason that Alan Greenspan couldn't understand, kept pushing for re-regulating the Savings and Loan industry.
Gray instituted a rule whereby savings associations could hold no more than ten percent of their assets in "direct investments", and were thus prohibited from taking ownership positions in certain financial entities and instruments
This was bad news for Lincoln Savings and Loan. By the end of 1986 they had unreported losses of $135 million and had exceeded their holdings of direct investments by $600 million.

Enter Keating Five

"The Republican reformer is back."
- CBS News on Senator McCain

It began to appear that the government was going to seize Lincoln Savings for being insolvent, but the investigation was taking a long time.
Charles Keating decided to ask five friendly senators for help. They were:

Alan Cranston (D-CA)
Dennis DeConcini (D-AZ)
John Glenn (D-OH)
John McCain (R-AZ)
Donald W. Riegle (D-MI)

Keating and McCain had been good friends since meeting in 1982 when McCain was first running for Congress. By 1987 Keating has raised $112,000 for McCain, more than a third of all the money he raised for all the Keating Five.

Over the years, McCain and his family took nine trips at Keating's expense (three to Keating's Bahamas' retreat), all of which McCain failed to disclose to the Senate Ethics Committee until after it was discovered during the investigation. At that point, he paid Keating $13,433 for the flights.
But that isn't the end of the story.
1. John McCain admitted to intentionally filing false income tax returns to defraud the IRS by not claiming thousands of dollars in gifts McCain and his family received from Charles Keating and Keating’s company. Years later, when the IRS noticed Keating’s company had written off the gifts to McCain as business expenses, McCain fessed up and admitted filing false returns and made a “donation” to the U.S. Treasury to cover the amount he defrauded American tax payers. (Committing tax fraud is one of the least offensive things John McCain has done over his career, but this article just focuses on his role in the Keating Five, and the Lincoln Savings and Loan scandal of the late 1980’s-early 1990’s). McCain also leaked information about the Keating Five to the press multiple times in an effort to appear above the other Senators in the scandal. A 1989 Phoenix New Times article summed it up best with their title - McCain: The Most Reprehensible of the Keating Five.

2. John McCain’s wife, Cindy McCain, along with her father, made a $359,000 investment in retail property owned by Charles Keating in 1986, a year before John McCain first met with federal regulators on behalf of Keating. Keating was later convicted on 73 counts of fraud, conspiracy, and other crimes. Years later, Cindy McCain sold her investment for $15,000,000.
In March of 1987, Keating and DeConcini asked McCain to travel to San Francisco to meet regulators on behalf of Lincoln Savings. McCain originally refused.
Keating responded by calling McCain a "wimp". Keating and McCain had a heated exchange on March 24.

Keating must have gotten his point across because on April 2, 1987, every member of the Keating Five, except for Riegle, met with Edwin J. Gray in DeConcini's office. The meeting was opened with the phrase "our friend at Lincoln."
Gray, obviously feeling intimidated, claimed he didn't know the details of Lincoln's situation and offered to set up a meeting with regulators.

On April 9, 1987, every member of the Keating Five met with three government regulators, again in DeConcini's office. The regulators thought the meeting was unusual.

"One of our jobs as elected officials is to help constituents in a proper fashion. ACC [American Continental Corporation] is a big employer and important to the local economy. I wouldn't want any special favors for them....I don't want any part of our conversation to be improper."
- Senator McCain at the April 9 meeting

The regulators informed the senators that Lincoln Savings wasn't just being investigated for insolvency, but was also under a criminal investigation.
At that point Senator McCain got cold feet and cut off contact with Charles Keating.

"I remain very upset that what they did caused such damage."
- William K. Black, one of the regulators at the April 9 meeting, and Keating Five whistleblower

In May the regulators recommended that Lincoln Savings be seized by the government. However, Gray's term in office was about to expire and didn't act before leaving office to avoid appearing to be vindictive due to his adversarial relationship with Keating.
The new chair of the FHLBB was M. Danny Wall, who was appointed by the Reagan Administration because he was more sympathetic to the S&L industry. Wall removed the Lincoln Savings investigation from San Francisco to Washington, where a new investigation began.

Lincoln Savings remained open until April 1989. Its assets grew from $3.91 billion to $5.46 billion during that time.
Branch managers and tellers convinced customers to take their FDIC-insured savings and put it into higher-yielding bond with ACC that were uninsured.

21,000 mostly elderly investors lost their life savings. The taxpayer's cost of cleaning up the mess was $2.6 Billion. Keating was hit with fraud and racketeering charges. In 1993 he was convinced of 73 counts. He served about four and a half years in prison.

In August 1991 the official Senate report came out on the Keating Five scandal.
It came down hardest on Alan Cranston. The only thing that saved him from censure was his decision not to run for re-election.
Riegle and DeConcini were ruled to have acted unethically.
The committee decided that Glen and McCain simply acted with "poor judgement".

"The appearance of it was wrong. It's a wrong appearance when a group of senators appear in a meeting with a group of regulators, because it conveys the impression of undue and improper influence. And it was the wrong thing to do."
- Senator McCain

Almost every consumer group associated with scandal called the report a "whitewash". DeConcini said that McCain got a "free ride" despite being the "most culpable" of the five senators.