The Scandal That Nearly Destroyed John McCain

Way back in 1988 my co-authors and I were putting the final touches to our book, Inside Job: The Looting of America's Savings and Loans when someone slipped us a plain brown envelop. Inside was a transcript of a meeting between thrift regulators and five US senators who had interceded on behalf of Arizona S&L owner Charles Keating. At the time the regulators were warning that Keating's thrift, Lincoln Savings and Loan, was dangerously insolvent and that Keating and his cohorts -- including then junk bond king, Mike Milken, were robbing the federally-insured thrift blind -- or, more precisely, robbing the US taxpayers blind.

Keating had been generous in sharing his new-found wealth with the five senators, particularly his two Arizona senators, John McCain and Dennis DeConcini. They became known as "The Keating Five."

Alarmed by such high-powered political arm twisting, FHLBB attorney, William Black, decided to document the meeting. He claims to this day that he did not secretly record the five senators. But over the years I've read countless transcripts and I remain certain that the following is a transcription taken off an actual recording.

Of course, once authenticating the transcript we wasted no time including it in the appendix of our book. The disclosure of the meeting and verbatim remarks by each senator caused them no end of misery. One would have thought McCain especially had learned his lesson about messing with the work of federal regulators. And it appeared he had. But then comes the revelation that he once again chummed up to an industry group -- this time telecom -- and inserted himself into the regulatory process in ways that look distressingly similar to the Keating affair.

The Keating affair was about money and influence, not sex. This new revelation may or may not have sex in it -- but fankly, I couldn't care less. I don't lay awake at night worrying if my senator is getting laid by the wrong people, I worry if they are getting paid by the wrong people.

In the case of Charles Keating that money and influence, and the delays caused by political pimping by people like McCain, cost American small shareholders and taxpayers dearly:

Much has been made of the $2 billion that it will cost taxpayers to bail out Charles H. Keating Jr.'s Lincoln Savings and Loan Association. But for the people who were persuaded to invest their life savings in now-worthless securities, the cost is emotional as well as financial. (NYT - 1989)

Anyway, how often have you wished you could be a fly on the wall at one of these closed-door sit downs? Well, here's a rare glimpse at one, up close and personal.

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"This meeting is very unusual ... to discuss a particular company."

-- Chairman, James Cirona, Federal Home Loan Bank, San Francisco, 1987

Memo

From: William Black, Esq.

To: Chairman, FHLBB, Edwin Gray

April 9, 1987

Meeting of FHLB-SF Personnel with:

Senators Cranston, DeConcini,

Glenn, McCain and Riegle

At your request I am providing you this memorandum, which reflects the substance of yesterday's meeting with Senators Cranston, DeConcini, Glenn, McCain and Riegle. The Federal Home Loan Bank of San Francisco (FHLB-SF) personnel who attended the meeting were James Cirona (President and Principal Supervisory Agent), Michael Patriarca (Director of Agency Functions), myself (general counsel) and Richard Sanchez (the Supervisory Agent for Lincoln Savings Assoc. of Irvine, Calif.).

The meeting commenced at 6:00 P.M. and ended at approximately 8:15 a.m., with two breaks of approximately 15 and 10 minutes during which time the Senators voted. Senator Cranston was present only very briefly, because of his responsibilities on the Senate floor. The other Senators were present for substantially the entire meeting.