S&L scandal uncovers U.S. senators for sale

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When gangsters move into a new territory they try to put venal cops and judges on their payroll. These cops "on the take" will warn of police raids, influence prosecutors, and otherwise ensure the smooth running of the racketeers' illegal but very profitable enterprises. The Mafia considers these payoffs just an additional business cost, well justified by the protection received.

More socially accepted entrepreneurs also see the value of political friends in high places. Charles Keating Jr., chairman of American Continental Corp., needed this sort of protection as he embarked on high-flying schemes of questionable legality in 1976.

Paying off a few cops in one city would not give him the cover he needed for his nationwide operations. Keating went all the way to the U.S. Senate to find a lawmaker who would take his money and serve as his man in Washington. Here he found, not one, but five senators who were willing to "go on the take" for Keating and serve his financial interests.

Of course, there was nothing so crude as envelopes being pushed across desks. The payoffs took the form mostly of contributions to campaign expenses. Meanwhile, allexpenses-paid vacations at Caribbean resorts were given as icing on the "take."

Two senators from Arizona, Dennis DeConcini and John McCain; Donald Reigle of Michigan; John Glenn of Ohio; and the Senate patriarch, Alan Cranston of California, became known as the "Keating Five."

These politicians-four Democrats and one Republican—were bound by ties of serious money to the cause of Charles Keating's enrichment. Their collective services cost Keating over $1.3 million. But they delivered when the crunch came.

Playing the pyramid game Crunches were bound to come as Keating expanded his small real-estate development firm in Arizona into the nucleus of a multibillion-dollar empire. Expansion would take huge amounts of capital. Savings-and-loan companies might be a source of loans. But pleading with loan officers was not Keating's way.

Instead, he bought the company—the Lincoln Savings and Loan Association of California. This gave Keating entree to a mint. He could instruct his loan officers to approve any loan he wished.

The price of Lincoln was $51 million. It was raised by selling junk bonds that paid high interest together with high risk. The assumption was that the debt would be paid off through rising real-estate values. But Arizona real-estate values plummeted in the 1980s, and Keating's suburban developments became big losers.

Now Keating played the pyramid game, knitting together a tangle of paper corporations to siphon money from one enterprise to another. The tangle was also designed to conceal the flow of Lincoln deposits to the most speculative investments. Federal rules limited such loans by S&Ls to 10 percent of their assets. By 1986, Lincoln was risking $600 million over this limit.

"Extaordinary political influence"

In San Francisco in 1986, federal bank examiners, headed by Michael Patriarca, saw what was going on and recommended that Lincoln Savings be taken over by the National Bank Board. Edwin Gray, chairman of the Board in Washington, concurred.

With this. threat confronting him, Keating sent a call for help to his men in the Senate. Four of them responded at once, crowding Gray's office demanding to know why Keating was being "harrassed." Gray suggested that the senators hear the facts from the San Francisco regulators.

Summoned to Washington, Patriarca and staff counsel William Black were confronted by all five of Keating's senators. This panel of five was more than intimidating to the regulators who said they had never heard of more than two congressmen meeting on behalf of even the largest bank.

In spite of this "extraordinary display of political influence," Gray and the men from San Francisco stood their ground. Lincoln Savings must be shut down to protect the depositors, they insisted.

Then wheels began to turn in the White House. In January 1987, Edwin Gray was superseded by M. Danny Wall as head of the Bank Board. Wall's credentials include helping pass the law that deregulated savings institutions. One of his first official acts was to take Patriarca and Black off the Lincoln case and move it to Washington, where all the files were relegated to an unprotected storeroom.

"One of meanest scams on record"

For the next two years, Keating was free to wheel and deal disastrously. He and his top associates siphoned off an estimated $43 million in perks and bonuses while corporate losses soared. Keating also had time to cheat elderly depositors out of their life savings through one of the meanest scams on record.

Tellers at Lincoln's 29 branches were told to sell $250 million worth of American Continental junk bonds to Lincoln depositors. Elderly depositors were told they could get a higher interest rate if they moved their deposits to these new accounts. They were not told that these junk bonds were not insured. Now 23,000 small investors have lost their life savings.

In April 1989, the Bank Board was finally forced to shut down Lincoln Savings. The two-year delay has cost the taxpayers another billion dollars in bailout expense. The total is estimated to be $2.5 billion. It is not known how many small depositors might have been saved if the federal government had acted two years ago.

California officials help out While federal interference was blocked by the Keating Five in Washington, the state of California was in a position to restrain Lincoln Savings as a California corporation. Here Keating ensured friendly treatment through a $189,000 contribution to Governor George Deukmejian's 1986 campaign.

To further strengthen ties, Deukmejian's closest political friends were made directors of one of Keating's subsidiaries, TCS Financial Services of San Diego. The financial services rendered were mainly shuffling Lincoln deposits among various failing enterprises.

Lawrence Taggart, the state's top bank regulator, was the cop on the beat. He was supposed to see that depositors' money was not poured down rat holes like TCS Financial. To help prevent this sort of thing, a new federal law was to go into effect on Dec. 10, 1984. To prevent last-minute transfers, the date was and SAVINGS & LOAN DRIVE THRU WINDOW DEPOSIT ONLY to be a closely kept secret. Only a few bank regulators were supposed to know.

Learning of this, Taggart rushed to warn Keating, who moved another chunk of Lincoln funds to TCS Financial (which had lost $716,000). A month after betraying the public trust, Taggart moved into the highest paid job TCS Financial had to offer.

Now the Keating scandal is being aired in Congressional hearings. Two witnesses, elderly women who lost their life savings in the debacle, broke down in tears as they charged Cranston with responsibility.

The Keating Five say they have done nothing wrong. But Doncini and Reigle have returned the thousands of dollars they got from Keating. Cranston hasn't returned anything, saying this is just the normal operation of Washington politics.

Cranston is right. He might have added that big money can buy Democrats as easily as Republicans; that politicians say they will represent "all the people," when they mean all the people with the money and political clout to pay for their services.

There will be a lot of talk now about reform. But aside from cosmetic changes, the system will continue. The millions it takes to run a Senatorial campaign are supplied by the wealthy who demand service for money. The ruling class likes it that way.

The Lincoln scandal proves again that workers cannot count on Democrats any more than Republicans to serve their interests. These politicians have already been bought by the millionaires.

puses across Canada. A high school group meets regularly in Toronto. Following the successful Oct. 14 demonstrations, a network of activist organizations—the Pro-Choice Action Network-has affiliates in a growing number of cities. Discussions are now underway for a possible march on Ottawa in February.

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ALAN CRANSTOI THINK TANK