Keating Five

The Keating Five were five United States Senators accused of corruption in 1989, igniting a major political scandal as part of the larger savings and loan crisis of the late 1980s and early 1990s.

Gray, chair of the Federal Home Loan Bank Board (FHLBB), feared that the savings industry's risky investment practices were exposing the government's insurance funds to huge losses.

[6] Gray instituted a rule whereby savings associations could hold no more than ten percent of their assets in "direct investments",[6] and were thus prohibited from taking ownership positions in certain financial entities and instruments.

[6] Keating had earlier taken several measures to oppose Gray and the FHLBB, including recruiting a study from then-private economist Alan Greenspan saying that direct investments were not harmful,[6] and getting President Ronald Reagan to make a recess appointment of a Keating ally, Atlanta real estate developer Lee H. Henkel Jr., to an open seat on the FHLBB.

A letter from audit firm Arthur Young & Co. bolstered Keating's case that the government investigation was taking a long time.

[7] On April 9, 1987, a two-hour meeting[4] with three members of the FHLBB San Francisco branch was held, again in DeConcini's office, to discuss the government's investigation of Lincoln.

[15] DeConcini also continued on behalf of Keating, contacting Wall, California State regulators, and the Federal Deposit Insurance Corporation (FDIC) advocating approval of a sale of Lincoln as a December 1988 alternative to government seizure.

[14] Glenn too continued to help Keating after the April 1987 revelation, by setting up a meeting with then-House Majority Leader Jim Wright.

[18] In spring 1988, the Los Angeles Times ran a short piece in their business section, but their political reporters did not follow up on it; two isolated, inside page mentions by The Washington Post and The Wall Street Journal similarly failed to develop further.

[6] During this time, the parent American Continental Corporation was desperate for cash inflow to make up for losses in real estate purchases and projects.

[12] FDIC chair L. William Seidman would later write that Lincoln's push to get depositors to switch was "one of the most heartless and cruel frauds in modern memory.

[23] Many investors, often living in California retirement communities, lost their life savings, and felt emotional damage for having been duped on top of their financial devastation.

[4] In talking to reporters in April, Keating said, "One question, among many raised in recent weeks, had to do with whether my financial support in any way influenced several political figures to take up my cause.

[18] On September 25, 1989, several Republicans from Ohio filed an ethics complaint against Glenn, charging that he had improperly intervened on Keating's behalf.

[30][31][32][33] But the most public attention came from the House Banking Committee, whose new chair Henry B. Gonzalez held 50 hours of hearings into the Lincoln failure and associated events.

[18] By November 1989, the estimated cost of the overall savings and loan crisis had reached $500 billion, and the media's formerly erratic coverage had turned around and become a feeding frenzy.

[29] The senators' initial defense of their actions rested on Keating being one of their constituents; McCain said, "I have done this kind of thing many, many times," and said the Lincoln case was like "helping the little lady who didn't get her Social Security.

"[35] Some of the five hired high-power Washington lawyers to represent them – including Charles Ruff for Glenn and John Dowd for McCain – while others feared that to do so would give the appearance their political careers were in jeopardy.

[39] The FBI soon focused their attention on Cranston, because the largest sums of money from Keating came into Cranston-involved voter-registration drives whose tax-exempt status might have been violated.

On September 10, 1990, Bennett submitted a confidential report, which soon leaked, that recommended that the committee continue its investigation of Cranston, DeConcini, and Riegle, but take no action against Glenn and McCain,[31] as there was insufficient evidence to pursue the latter two.

[51] At the opening of the hearings, as The Washington Post would later write, "the senators sat dourly alongside one another in a long row, a visual suggestive of co-defendants in a rogues' docket.

Extenuating circumstances that helped to save Cranston from censure included the fact that he was suffering from cancer, and that he had decided to not seek reelection, according to Heflin.

[32] Cranston was not accused of breaking any specific laws or rules, but of violating standards that Heflin said "do not permit official actions to be linked with fund-raising."

[63] Jonathan Alter of Newsweek said it was a classic case of the government trying to investigate itself, labeling the Senate Ethics Committee "shameless" for having "let four of the infamous Keating Five off with a wrist tap.

The politically difficult thing, the one requiring backbone, was what we did — to review all the evidence and reach a predictably unpopular conclusion based only on fact.

[45] Chair Heflin was upset by the leaks and two investigations into them were held, one by the General Accounting Office acting on behalf of the committee and one by the Senate's Temporary Special Independent Counsel.

[45] Keating and Lincoln Savings became convenient symbols for arguments about what had gone wrong in America's financial system and society,[67] and were featured in popular culture references.

[66] By spring 1992, a deck of playing cards was being marketed, called "The Savings and Loan Scandal", that featured on their face Charles Keating holding up his hand, with images of the five senators portrayed as puppets on his fingers.

[48] Political historian Lewis Gould would later echo this sentiment, as well as Cranston attorney Dershowitz's argument, writing that, "the real problem for the 'Keating Three' who were most involved was that they had been caught.

[8][71] Glenn prevailed, however, defeating DeWine by nine percentage points to gain one more term in the Senate before retiring and not running for re-election in 1998, at age 77.