Amid McCain's new status, old scandals stir
Critics wonder what he learned from Keating 5
By Michael Kranish, Globe Staff | February 28, 2008
WASHINGTON - As William K. Black watches John McCain move toward the Republican presidential nomination, he thinks of a day 21 years ago that he considers one of the most troubling of his life.
Black, a senior federal savings and loan regulator at the time, attended a meeting at which he felt McCain and four other senators pressured federal regulators to back off from investigating the troubled Lincoln Savings and Loan.
"I remain very upset that what they did caused such damage," said Black, now a professor at the University of Missouri at Kansas City, recalling how Lincoln's bankruptcy cost the government $3 billion. Moreover, he said he believes McCain intervened partly because his wife had invested money with Lincoln chairman Charles Keating, a campaign contributor who let the McCains use his home in the Bahamas.
The story of how the "Keating Five" senators allegedly pressured regulators to lay off a failing Arizona S&L became a major scandal, and marked a turning point in McCain's life - the near-death of his political career followed by his eventual rebirth as a crusader for campaign finance reform.
The events of 1987, when McCain met with regulators, and 1991, when the Senate Ethics Committee concluded that he used "poor judgment" in the matter, are only dimly remembered by many.
But McCain's emergence as the likely GOP nominee, combined with the rising volume of anti- lobbying rhetoric in the presidential campaign, has brought renewed attention to the Keating Five case, prompting questions about what McCain learned from it, what he's accepted was wrong, and whether he now is stepping back from some of his own scrutiny of his past errors.
McCain also has faced fresh criticism for pushing the Federal Communications Commission to make a decision in a 1999 case affecting another major campaign donor, Paxson Communications. Responding to recent coverage of that case, his campaign issued a statement last week saying the Arizona senator has "never done favors for special interests."
That declaration appeared at odds with McCain's previous acknowledgment that he made errors in the Keating Five case, which he called in his 2002 autobiography the "worst mistake of my life." The McCain campaign was asked repeatedly over a weeklong period to reconcile the two statements, but declined to respond to that or other questions related to the Keating episode.
McCain has also seemed to soften his earlier statements about being influenced by political donors and lobbyists. In 2000, McCain told the Globe: "People give money to buy access. We're all tainted by this system. . . . They have access, and therefore they have influence. It corrupts the system. And I'm a victim of it, too." But at a press conference on Feb. 21, McCain said: "The question is . . . do they have excess or unwarranted influence? And certainly no one ever has, in my conduct of my public life and conduct of my legislative agenda."
Black, however, maintains that the Keating case was a textbook example of politicians, McCain among them, serving a major donor. And Dennis DeConcini, a former Democratic senator from Arizona and another of the Keating Five who hosted the key meeting in his office, said in an interview that McCain has gotten a relatively "free ride" even though DeConcini insists that McCain was the "most culpable" of the senators because he had the closest relationship with Keating.
McCain met Keating in 1982, during McCain's successful run for Congress, and soon began accepting offers from Keating to fly McCain's family on a corporate plane to Keating's house in the Bahamas. McCain did not pay for most of the trips until years later, when the matter became public.
Keating, meanwhile, complained regularly to McCain that a proposed regulation would hurt his business. Known as the "direct investment" rule, it limited the amount that savings-and-loan institutions could invest from their assets. In 1985, after having "heard frequently from Charlie on the matter," McCain decided that Keating's complaints "were sound enough to warrant our assistance." He cosponsored a resolution sought by Keating, but it failed to postpone the regulation, McCain wrote in his autobiography.
By then, Keating was one of McCain's most important benefactors; McCain received $112,000 in campaign donations from Keating and his Lincoln associates, mostly between 1982 and 1986.
In the summer of 1986, while McCain was running for the Senate, the banking executive wrote him letters castigating the regulators. "The [bank board] is a mad dog turned loose in a police state," Keating wrote in one of them. Weeks later, McCain accepted another trip aboard Keating's jet to the Bahamas.
"I genuinely liked him and enjoyed being around him, especially on those occasions when Cindy and I and our oldest child, Meghan, were invited to his family's vacation home in the Bahamas," McCain wrote in his book. "I was never concerned that the time I spent enjoying Charlie's company would raise public doubts about my judgment."
With McCain having failed to postpone the regulation limiting investments by a savings and loan, Keating wanted him and other senators to get the Federal Home Loan Bank Board to grant Lincoln an exemption from the rule. McCain subsequently attended two meetings with regulators.
McCain said he felt he had a responsibility to a constituent whose company had 2,000 employees. Yet McCain had reason to be wary. His closeness to Keating had been an issue in his 1986 campaign, and aides urged him not to go to the meetings.
Four senators, including McCain, met with Edwin Gray, the chairman of the Federal Home Loan Bank Board in Washington that April in 1987. When Gray returned from the meeting, he told Black he was "very upset" that the senators were trying to pressure him, according to Black's Senate testimony. Gray told Black to attend a follow-up meeting and take notes. Gray could not be reached for comment.
A week later, five senators, including McCain, met with Black and three other regulators at DeConcini's office.
"I don't want any part of our conversation to be improper," McCain said, according to Black's notes. Then he launched into a complaint about how regulators were conducting an examination of Lincoln's finances. "It seems to me, from talking to many folks in Arizona, that there's a problem," McCain said, according to Black's notes.
Black later told the Senate Ethics Committee that the actions of the five senators were clearly "improper."
"This was an institution that is probably the worst institution in America," Black said, referring to Lincoln. Instead of trying to help "bring it under control, five US Senators were pushing us in the opposite direction."
McCain, in his autobiography, said he regrets staying at the meeting. He wrote that he should have left when one of the regulators said the meeting was "very unusual" and that he "really shouldn't have come back" after learning that the regulators were sending the matter to the Justice Department.
Months later, questions emerged about why McCain did not reimburse Keating for all the Bahamas vacations. McCain said he thought that his wife, Cindy, had written checks for a number of trips, but documentation could not be found for any except the 1986 trip. McCain agreed to pay $13,433.
In addition, the Arizona Republic reported that Cindy McCain and her father had invested $359,100 in a shopping mall for which Keating was the principal backer. When reporters questioned the investment, John McCain wrote in his autobiography, he "shouted at them, cursed them, and eventually slammed the phone down on them. It was ridiculously immature behavior."
The Senate Ethics Committee determined that McCain, along with then-Senator John Glenn of Ohio, "exercised poor judgment." The committee found that others had gone further, ruling that DeConcini and Senator Donald Riegle of Michigan "gave the appearance of being improper" and recommending Senator Alan Cranston of California for censure.
Robert Bennett, the committee counsel, has said the pronouncement against McCain was harsh and the result of "pure politics" by Democrats on the panel. Bennett now is working for McCain to help respond to questions about the senator's efforts in 1999 on behalf of Paxson Communications. Bennett did not respond to requests for comment.
In 2000, the Globe reported that McCain, in 1999, had pushed the FCC to act on Paxson's request for permission to buy a television station; in that case, McCain had received $20,000 in Paxson donations and flew aboard a Paxson jet. McCain's actions raised questions at the time about whether he had learned from his Keating experience. McCain stressed that he never suggested how the FCC should rule on the matter.
McCain has said he has learned the importance of avoiding the appearance of impropriety. He said in his autobiography he would not intervene with regulators or advocate "anything for any purpose that doesn't serve an obvious public interest." He eventually renounced the practice of flying on corporate jets, but has stood by his general support of deregulation of financial institutions.
During both his 2000 and 2008 campaigns, McCain has said on many occasions aboard his "Straight Talk Express" campaign bus that he learned from the Keating experience and that it turned him into a proponent of campaign finance reform. Nonetheless, on a recent campaign swing, he acknowledged he would be forever linked to the scandal. The Keating Five, he said, "will be on my tombstone."
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