Keating Economics

Keating Economics: "S&L’s Risky Investments With Federally-Insured Money Led To Call For More Regulation. In the early 1980’s, Charles Keating’s American Continental Corporation purchased a California S&L named Lincoln. At that time, S&Ls like Lincoln were able to go beyond their traditional purpose of offering home loans and engage in riskier forms of investment. Since the deposits of S&Ls were insured by the federal government, regulators began to take notice of the investments being made by Keating and at other S&Ls. The Federal Home Loan Band Board (FHLLB), which had regulatory authority over the S&Ls, began to worry about the risks of this trend, and proposed a “direct investment” regulation to limit the money S&Ls could direct to these riskier investments. [Senate Ethics Committee Keating Five Investigation, 1990]

At Keating’s Request, McCain Wrote 5 Letters, Supported Bill To Forestall Direct Investment Rule. Keating was unhappy with the direct investment rule and began actively lobbying against it. Senate Ethics Committee Special Counsel Robert Bennett explained during the 1990 Keating Five hearings that John McCain wrote at least five letters to regulators, Treasury and White House officials to argue against these proposed restrictions on risky investments by S&Ls. Bennett said that “In 1984 and ‘85, then Congressman McCain wrote several letters to Chairman [Edwin] Gray [of the Federal Home Loan Bank Board] and White House officials urging them to postpone promulgation of the direct investment rule's There is evidence that Senator McCain did so at the urging of Mr. Keating or other representatives of Lincoln.” McCain’s work for Keating also included signing onto a bill to delay the direct investment rule in 1984 [Senate Ethics Committee Keating Five Investigation, 1990; HCONRES 363, 98th Congress]".