The Story of John “Keating” McCain:
A Proposed Strategy for Democratic Victory in 2008
by Nicholas Feden

One cannot turn on the television without hearing about rising incidents of foreclosure, increases in the cost of energy, and the collapse of the dollar. Americans are no longer turning to television to understand the effects of these changes; they now turn to television to understand the causes of what they are experiencing in their daily lives. The Democratic Party must organize our campaign around our unique history of protecting the general Welfare of the common man in times of economic trouble. Given the current economic crisis, this will strike a chord, especially among those voters who have, until now, had the luxury of voting on the basis of single issues such as abortion, gay marriage, or similar concepts. We must ensure that the question the voters are asking themselves come Election Day is: will this candidate fight for the general Welfare, or will he bail out the speculators?

We can and must regain the dominance once held in the South and Midwest regions that took our party to national victories in the past. Remember that Carter won Texas in ’76, Clinton won Ohio in ’92 & ’96, and FDR won them all in ’36 (almost). Our success depends on our ability to generate a paradigm shaped by the reality of the economic conditions. Within this paradigm the voters, specifically those small town, working class voters must begin to recognize that there are two contrasting tendencies in this country: that of the Democratic party which fights for the general Welfare in times of crisis versus that of the Republican party which will allow the market to destroy the common people while the large financiers receive protection.

Having sufficiently shaped the stage in the minds of the voters – enter, stage right – John “Keating” McCain. Keating? some may inquire. They may vaguely recall the name. Then let us remind them fully of the origin of Senator McCain.

The Keating Saga

In 1932, during the Great Depression Congress passed the Federal Home Loan Bank Act. This legislation established the first Federal Home Loan Bank which assisted other banks in providing funding for long-term, amortized loans for home purchase for the common people. As a result of the low-cost Federal funding, savings and loan associations began to spring up around the country. In order to ensure that people’s savings were safe, and continuous homeowner loans could be offered, these institutions were Federally insured and regulated. The Federal regulation, however, was to come under attack in the 1980’s.

When Charles Keating Jr., a real estate developer, purchased Lincoln Savings and Loan in the early 80’s, he did so in an era of massive deregulation in the financial sector. During this period he was able to use the S&L for the purpose of direct investment in risky speculative areas, knowing that should anything go wrong the FDIC would bail out Lincoln. He was also able to use the large amount of direct investments to hide completely fraudulent dealings. William Black, then counsel to the Federal Home Loan Bank Board, described the debacle this created:

Keating proved to be the worst of the S&L looters, and Lincoln the most expensive failure at $3.4 billion. Deposit insurance meant that there were no identifiable individual victims when S&Ls failed. Lincoln's parent company, however, sold uninsured, worthless junk bonds out of Lincoln's branches. Worse, it targeted widows. This created individual victims who lost their life's savings — and the face of the victim was your grandmother.

In 1984, Federal Home Loan Bank Board chairman Edwin Gray, recognizing the dangers of the direct investments, began a move toward reregulation. Included among the steps Gray took was the reinstatement of the Direct Investment Rule, which would have limited the amount and type of direct investment that an S & L could be involved in and would have destroyed Keating’s Lincoln scam.

Enter John McCain

In desperation, Keating turned to the political agents on his payroll – among them, none other than John McCain. Between 1982 and 1987, John McCain had received over $100,000, both from Keating personally and fundraising activities that Keating did on his behalf. And McCain did not let him down.
McCain’s service for Keating began while he was in the House. Representative John McCain co-sponsored a resolution asking the Home Loan Bank Board to delay the implementation of the Direct Investment Rule. Later, as the only Republican among the Keating Five, McCain was instrumental in influencing the Reagan Administration to appoint individuals friendly to Keating to the Bank Board. One of those appointees, Lee Henkel, attempted to draft the Rule so as to secretly exclude Lincoln Savings, but was caught by William Black. As a result, Henkel was forced to resign and Keating was forced to take a more direct approach- the infamous Keating Five meetings.

On two separate occasions, John McCain and a small group of Senators, subsequently named the Keating Five, met, sans staff, with the regulators involved in investigating Lincoln. According to those present the message was clear: leave Lincoln alone! It was for these meetings and the pressure placed onto the regulators that the Senators eventually received censure from the Senate Ethics Committee. It should be clear, however, that John McCain’s involvement was did not limited to these meetings.

Gotta Serve Someone

The true tragedy is not what McCain and these other Senators did, but what they failed to do – protect their constituents. As William Black wrote:

The Keating Five, including McCain, were perfectly situated to take action to protect their constituents. They could have held oversight hearings. They could have warned the widows. "All that is necessary for the triumph of evil is that good men do nothing,” these men did nothing.

Nothing. Black continues;

None of the Keating Five members helped protect their constituents by supporting regulatory efforts to end Keating's looting of Lincoln. We told them in fair detail at the April 9, 1987 meeting that it was a fraudulent institution and that it was guaranteed to fail if it continued its policies.

And fail it did, just as the regulators had said it would, at a cost to the taxpayers of $3.4 Billion. Meanwhile, the widows who had been targeted by Keating’s scams were left with nothing, their entire life savings destroyed. Had the Senators listened to the Bank Board, perhaps this could have been avoided, but instead they perceived the regulators as the “enemy” attempting to hurt their “friend” Charles Keating. Black wrote:

The paradox is that the Keating Five proved so unlucky in their choice of Keating as their ally and so lucky in their initial regulatory "opponents." We were not the Keating Five's opponents, but that is how they perceived us. We were their public servants trying to warn them that they were being manipulated by a fraud that was causing enormous harm to their constituents and exposing the Senators to scandal.

On To Victory

This is the story of John McCain that must be told, and it must be told against the backdrop of the current economic crisis that millions of Americans are experiencing, either themselves or through friends and family. At the same time, it must be told against the larger backdrop of American History, especially the Democratic Party’s response to the 1932 depression. In this context, let the question be asked: Who will stand for the general Welfare of the population and who will stand with the speculators? When this is the question on the minds of the population from Texas to Ohio, John “Keating” McCain won’t stand a chance.

The author is a 2nd year law student at Temple University and can be reached at nickfeden@gmail.com