

by Rosa Brooks (LA Times)

Once upon a time, a politician took campaign contributions and favors from a friendly constituent who happened to run a savings and loan association. The contributions were generous: They came to about $200,000 in today’s dollars, and on top of that there were several free vacations for the politician and his family, along with private jet trips and other perks. The politician voted repeatedly against congressional efforts to tighten regulation of S&Ls, and in 1987, when he learned that his constituent’s S&L was the target of a federal investigation, he met with regulators in an effort to get them to back off.

That politician was John McCain, and his generous friend was Charles Keating, head of Lincoln Savings & Loan. While he was courting McCain and other senators and urging them to oppose tougher regulation of S&Ls, Keating was also investing his depositors’ federally insured savings in risky ventures. When those lost money, Keating tried to hide the losses from regulators by inducing his customers to switch from insured accounts to uninsured (and worthless) bonds issued by Lincoln’s near-bankrupt parent company. In 1989, it went belly up — and more than 20,000 Lincoln customers saw their savings vanish.

Keating went to prison, and McCain’s Senate career almost ended. Together with the rest of the so-called Keating Five — Sens. Alan Cranston (D-Calif.), John Glenn (D-Ohio), Don Riegle (D-Mich.) and Dennis DeConcini (D-Ariz.), all of whom had also accepted large donations from Keating and intervened on his behalf — McCain was investigated by the Senate Ethics Committee and ultimately reprimanded for “poor judgment.”

But the savings and loan crisis mushroomed. Eventually, the government spent about $125 billion in taxpayer dollars to bail out hundreds of failed S&Ls that, like Keating’s, fell victim to a combination of private-sector greed and the “poor judgment” of politicians like McCain.

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