"Sen. Barack Obama (D-Ill.) on Monday will launch a multimedia campaign to draw attention to the involvement of Sen. John McCain (R-Ariz.) in the “Keating Five” savings-and-loan scandal of 1989-91, which blemished McCain’s public image and set him on his course as a self-styled reformer.
Pushing back against what it calls McCain's “guilt-by-association” tactics, the Obama campaign is e-mailing millions of supporters a link to a website, KeatingEconomics.com, which will have a 13-minute documentary on the scandal beginning at noon Eastern time on Monday. The overnight e-mails urge recipients to pass the link on to friends.
The Obama campaign, including its surrogates appearing on radio and television, will argue that the deregulatory fervor that caused massive, cascading savings-and-loan collapses in the late ‘80s was pursued by McCain throughout his career, and helped cause the current credit crisis."
I think a lot depends on how the Obama campaign does this. If they attempt to make the Keating scandal their main message, I think that would be a mistake. It would distract from what should be their central messages -- the economy, health care -- and since it would do so in favor of a much less substantive story, it would undercut their ability to point out that McCain is trying to divert attention from the economy. However, if they use it primarily in response to McCain's attempts to tie him to William Ayers and others -- putting the website out there as a resource, maybe talking about it tomorrow, but otherwise using it only when the McCain campaign brings up Ayers, Rezko, et al., and then only briefly -- then I think it's fine. Theda Skocpol has a good suggestion along these lines:
"If McCain raises Rezko personally in the Tuesday debate, Obama must turn to him, face him, and say something like this personally. Everyone knows that Obama hates to do this, but, really, this is a test of strength. "With all due respect, John, there is only one candidate here tonight who has been found guilty of public misconduct -- and that is you in the Keating Five scandal. You pressured federal regulators to let your banker friend and political supporter run amok -- and it ended up costing the taxpayers billions to fix the mess you and other DC insiders helped to create. I have never engaged in personal or public wrongdoing of any kind, and you know it.""
I would also hope that if they have to use the Keating story, they take advantage of the occasion to make broader points about McCain's more general economic views. The Keating Five story was, in part, about a crooked bank trying to keep regulators off its back while it was losing its investors' money. Charles Keating, who ran the bank, had contributed a lot of money to McCain and the other four Senators; he had flown McCain and his family to vacations in the Bahamas, vacations McCain paid for only after they were made public; he had invested with Cindy McCain and her father as partners. Keating was later asked about these contributions:
""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," he told reporters in April after Federal regulators had taken over Lincoln, with its $6 billion in insured deposits, almost $4 billion of which went to speculative investments in real estate and high-risk "junk bonds."
"I want to say in the most forceful way I can: I certainly hope so.""
In 1987, Lincoln was in trouble: "Gray’s regulators had found that, by the end of 1986, Lincoln Savings had exceeded the investment regulation by $600 million — and had unreported losses of more than $130 million." Keating was worried that his bank might be seized. So the five Senators, including McCain, met with regulators to urge them to back off. The regulators refused. Ultimately, the bank failed:
"Lincoln Savings failed in 1989 because of bad loans and mounting losses in direct investments, ultimately costing taxpayers more than $3 billion. Keating was convicted on 73 federal counts of wire and bankrutpcy fraud in 1993, and spent four years in prison before his conviction was overturned on appeal. Faced with a second trial, he pleaded guilty to four counts of fraud, and was sentenced to time served."
The S&L crisis obviously differs from today's crisis in a number of ways, but it also has some real parallels. One of the regulators who was in one of the meetings with McCain back in 1987 draws some of those parallels here. For instance:
"To head off a crisis, the bank board regulators moved to institute tougher accounting standards and increase the amount of capital that thrifts had to hold in reserve. But Congress resisted. According to Black, McCain supported the continuation of accounting rules -- dubbed "Keating accounting" by Black -- that allowed thrifts to mask their losses for years by overstating the value of their assets, including intangibles like "goodwill" in the thrift's net worth. (...)
Black said McCain has still not learned the lessons of strong financial regulation and strict accounting standards. As evidence, he points to the senator’s March 25 speech on the housing crisis. McCain called for a national meeting of accounting professionals to discuss changing the "current mark to market" accounting system -- that requires lending institutions to price assets at current market value.
"We are witnessing an unprecedented situation as banks and investors try to determine the appropriate value of the assets they are holding," McCain said, "and there is widespread concern that this [mark-to-market] approach is exacerbating the credit crunch.
These were terrifying words to the former banking regulator, who had witnessed firsthand the consequences of accounting rules that did not accurately value the assets of thrifts. "McCain's answer," Black charges, "is to get the accountants in the room to make sure we create phony capital by not recognizing our losses.""
And then there's this charming idea:
"I’ll tell you the biggest thing Sen. McCain -- then Rep. McCain -- tried to do," Black said on NPR. "The administration attempted to give Charles Keating control over the federal agency regulating savings and loans. There were three presidential appointees and there were to be two members chosen by Charles Keating. Sen. McCain was not only aware of that effort but supportive of it. Had that occurred, the savings and loan crisis, instead of being $125 billion to $150 billion, would have been over a trillion dollars. It would have probably still been our worst political scandal in history."
People with good judgment not only don't try to persuade regulators to back off bankers who are in business with their wives, they don't support efforts to put foxes in charge of guarding henhouses. Imagine what McCain's judgment could do for us in the next few years, if we give him the chance.
One other thing. During the primaries and now, I have kept a running list of the various stories I know of that the Obama campaign has not used against its opponents. One obvious example, in McCain's case, is the fact that his father-in-law, whose fortune helped financed his campaigns, and whom he has described as a role model, was a convicted criminal who had ties to organized crime. I do not, myself, regard most of these stories as relevant, though given the present economic crisis, I think the Keating Five story is. But many of them have more substance and more relevance than the wafer-thin story of Obama's acquaintance with Ayers.
When McCain went after Obama for having advisors with ties to Fannie Mae and Freddie Mac, it came out in fairly short order that his connections to Fannie and Freddie were much deeper than Obama's. A lot of people, myself included, wondered why McCain had chosen to raise that line of attack, since he himself was much more vulnerable to it than Obama. Raising questions about people Obama knows, and what his acquaintances tell us about his judgment, is exactly the same: I cannot imagine why John McCain thinks that going down this particular road is likely to be a winning strategy for him. Either the Obama campaign will stick to the high ground, using the Keating story purely defensively, or things will get very ugly. I'm hoping for the first option, and the second seems very out of character for the Obama campaign.
In McCain's shoes, though, I wouldn't take that gamble.