Sunday, May 31, 2009

He wasn't good, but he had good intentions.

(With apologies to Lyle Lovett for stealing a line from one of his songs, only changing the personal pronoun.)

You may not remember much about Charles Keating. The shorthand account of his story is that he ran a savings and loan into the ground, he bribed five senators to get the federal regulators off his back, he was tried and went to jail. There's actually a lot more to his story.

Charles Keating was prominent in the social conservative movement, faithfully following his devout Roman Catholic beliefs. His main focus was as an anti-pornography crusader, but he had other interests as well. His main business interest was Lincoln Savings and Loan. He wanted the government to change the rules on what investments savings and loans could make. For many generations, S&Ls were in the local real estate loan business. It was nice, steady money, but in the 1980s it looked like a boringly low return on investment. They could make a lot more profit if they would be allowed to invest in so-called "junk bonds". Keating argued that the name "junk bonds" made the investments sound more risky than they actually were. He paid a private sector economist named Alan Greenspan to make this argument in print. The Reagan administration changed those rules in the early 1980s, but by 1985, the chickens were coming home to roost. Junk bonds were living up to their name, and a lot of S&Ls were starting to show huge losses. Keating lobbied the Reagan administration to appoint regulators who wouldn't go after the S&Ls, and in 1985, Reagan made a recess appointment to the Federal Home Loan Bank Board who did just that.

Even with lax regulation, it was hard to hide just how badly Lincoln Savings and Loan was being run, and in 1987, Keating began giving "campaign contributions" to senators in exchange for those senators brow beating the regulators to look the other way. While Keating's political career tended towards the conservative side, he was an equal opportunity briber. Four of the Keating Five were Democrats, and the scandal crushed all the careers of the Democrats. The one Republican exception was John McCain, who admitted he did wrong and promised never to do it again, scout's honor.

Lincoln Savings and Loan failed big time. The federal deposit insurance had to pay $3 billion to the people who had small enough investments at Lincoln. Keating was tried and convicted of defrauding larger investors when he sold them junk bonds. A California judge named Lance Ito sentenced him to ten years in jail. He served five before the convictions were overturned based on faulty jury instructions. The feds decided to re-try him, and he plead guilty to a deal that limited the punishment to time served.

A question arises from the story of Charles Keating. If a man steals, but then gives those proceeds to worthy causes, is he still a thief? When he was convicted, another person to whom Keating had sent bribes (or is it donations?) wrote a letter to Judge Ito pleading for leniency. That person was Mother Teresa. The judge decided that a thief who gives to charity is still a thief, which may be the best legal decision Ito ever made.

I bring this up now because President Bush, never a brilliant legal scholar, says that the information we obtained from torture saved lives. In other words, the fruits of an illegal act lead to a positive result.

Let's assume what Bush says is true. Given the nature of secret documents, the public will never have the full record to prove or disprove his statement. Even if he is right, committing a crime and doing something good with the proceeds does not make the original crime suddenly legal.

I quoted law professor Jonathan Turley a few months back, and what he said then is still true. We don't need a truth and reconciliation committee. We have a criminal code, and those who broke the law need to reconcile themselves with the law. While Mr. Undisclosed Location himself Dick Cheney is the biggest blabber to the press right now, we have plenty of comments from others who were in the loop of criminal wrongdoing, including Alberto Gonzalez and George W. Bush. If they are so eager to get their side of the story out, let them explain themselves in a court of law under oath.


trinket999 said...

It's interesting how some names just come up again and again.

The surprise one for me here is Ito. Thanks for that bit of trivia!

CDP said...

I also didn't realize that Judge Ito had presided in the Keating case. He was right; stolen money donated to charity is still stolen.

Matty Boy said...

The story is filled with celebrities, some who become more celebrated after their brush with Keating.