WORLD

A question of ethics

The S&L scandal reaches the Senate

MARCI McDONALD November 26 1990
WORLD

A question of ethics

The S&L scandal reaches the Senate

MARCI McDONALD November 26 1990

A question of ethics

THE UNITED STATES

The S&L scandal reaches the Senate

Beneath the imposing marble back wall of the Senate’s stark hearing room H-216, studded with the Great Seal of the United States, rows of television lights lent the proceedings a theatrical air. In front of them, a phalanx of photographers crouched, their shutters clattering, to capture a drama unprecedented in the 201-year history of the Senate: a public hearing into whether five of the nation’s most powerful congressmen improperly tried to prevent federal regulators from pursuing one of their major campaign contributors, indicted California savings and loan tycoon Charles Keating. As Democratic Senator Howell Heflin, who heads the bipartisan Senate select committee on ethics, bluntly put it, “Senators, many of our fellow citizens apparently believe that your services were bought by Charles Keating, that you were bribed, that you sold your office, that you traded your honor and your good names for contributions and other benefits.”

On that harsh opening note, it quickly became clear that more was at stake in the tense, historic hearings than the political careers of the socalled Keating Five: Democratic senators Alan Cranston of California, Dennis DeConcini of Arizona, John Glenn of Ohio and Donald Riegle of Michigan, as well as Republican John McCain of Arizona. Also on trial were the essence and integrity of the American political system itself—the complex relationship between the millions of dollars required for increasingly costly congressional campaigns, and how much influence those contributions can wield over the nation’s business. That question appeared all the more urgent coming little more than a week after midterm elections, which revealed a mounting level of public cynicism about the political process. In fact, as the committee’s special counsel, Robert Bennett, told the panel, the case signalled a “booming warning that, unless these trends are recognized and dealt with, the reputation of this body and its members will be in utter ruin.”

The hearings represented the latest political

toll in what economists term the greatest financial scandal in U.S. history, one which may cost taxpayers as much as $581 billion. The bailout of Keating’s Lincoln Savings and Loan in Irvine, Calif., will alone run to $2.9 billion. The scandal has even brushed the doorstep of the White House. In fact, last week Washington’s Office of Thrift Supervision renewed its

conflict-of-interest allegations against the President’s son Neil Bush for “unsafe or unsound” practices in authorizing loans to business partners in his role as a director of Colorado’s Silverado Banking, Savings and Loan Association, which failed in December, 1988.

In his opening statement last week, Bennett appeared to exonerate two of the Senate’s few heroes: former astronaut Glenn and decorated Vietnam War veteran McCain. Bennett had recommended two months ago that the committee drop proceedings against the pair, on the grounds that there was insufficient evidence against them. But he insisted that Senate banking committee chairman Riegle “played a much greater role than he now recalls.” And he was unsparing in his criticism of DeConcini and

Cranston, the second-most powerful Democrat in the Senate.

Only one week earlier, the 76-year-old Californian had announced that he was resigning his post as Senate majority whip and that he would not run for re-election at the end of his six-year term in 1992 because he was suffering from prostate cancer. But exit polls from the Nov. 6 election had also delivered a harsh verdict on his conduct in the S&L debacle: 24 per cent of those asked urged him to resign immediately. Looking frail and unwell at the Senate hearing last Friday, Cranston presented an emotional defence not only of himself but also of his son Kim, who ran voter-registration drives that benefited from Keating’s generosity. Said Cranston: “False charges against my flesh and blood pain me far more than the charges against me.”

Bennett produced documents showing that

DeConcini and Cranston continued their efforts to help Keating long after regulators warned that they were referring his case to the justice department, resulting in criminal fraud charges against him last year. And Cranston even carried on his efforts after former Arizona governor Bruce Babbitt told him that Keating was “a crook.” DeConcini received nearly $56,000 in campaign contributions from Keating, and his aides benefited from $58 million in real estate loans. In both cases, Bennett charged, “acts and money were discussed at the same time.” And, he added, “hundreds of thousands of dollars, in the case of Mr. Cranston, passed in an office in this building.”

That reference was to Keating’s donation of more than $988,000 to three California voterregistration drives under Kim Cranston’s con-

trol, and nearly $99,000 to a get-out-the-vote campaign that helped the senator narrowly win re-election in 1986. Keating once stunned reporters who asked whether he thought his political contributions were buying influence. “I certainly hope so,” he replied.

Still, most experts expressed skepticism that the hearings will provoke any fundamental reforms in campaign financing. And many, including Robert Litan of Washington’s independent Brookings Institution, point out that, despite the magnitude of the S&L scandal, it has been slow to affect the political landscape, even during this month’s congressional elections. “There’s still an enormous amount of latent anger among the voting public,” Litan said. “But the responsibility for the crisis is so diffuse, it’s hard to pin it on anybody.”

But according to testimony at House subcommittee hearings earlier last week, government officials may have made a concerted effort to cover up the extent of the savings and loan failures before the 1988 presidential election. A 1988 review of the chief thrift regulatory body for five southwestern states showed that officials knew that some savings and loan associations were deliberately concealing losses with the approval of local examiners. But they failed to sound an alert because some members of regional regulatory boards also sat on the questionable thrift boards.

In April, 1988, then-Treasury Secretary James Baker, soon to become the chairman of George Bush’s presidential election campaign (and now secretary of state), testified before a congressional subcommittee that the S&L bailouts required only $11.6 billion to “handle the problems of the industry over the next three years.” But seven months later, only 22 days after Bush’s electoral victory, Chief Thrift Regulator William Seidman revealed that closing down the 100 most troubled S&Ls alone would cost taxpayers nearly $35 billion. And one Colorado regulator has testified that in the summer of 1988, he received a phone call from someone in the White House, whose name he claimed he could not remember, asking him to delay seizing Neil Bush’s faltering Silverado until after the November election.

But some economists argue that the S&L crisis in fact involved a far more damaging brand of coverup. In the current ethics committee hearings, charged Paul Craig Roberts of Washington’s Center for Strategic and International Studies, both Congress and the Bush administration are engaging in “scapegoating.” Added Roberts: “The crisis is not the fault of the Keating Five. These senators are being sacrificed by their colleagues in order to deflect the public’s attention from the real cause of the crisis—incompetent government policy.” In fact, most worrisome of all is Litan’s contention that the same policies now threaten U.S. banks, 200 of which failed last year, raising the spectre of a potential economic catastrophe that could overshadow any public concerns over the Keating Five’s campaign finances.

MARCI McDONALD in Washington