Chapter 3— John McCain and Financial Frauds35 min read

“People matter in part because they vary in their concepts of duty, integrity and courage. Morals matter, but people are capable of doing immoral acts while believing they are morally superior.”


—William K. Black, The Best Way to Rob a Bank is to Own One (2005)

John McCain was one of the “Keating Five” Senators who stalled the reform of laws governing the U.S. thrift industry on behalf of Phoenix resident Charles H. Keating, Jr. Keating, the chairman of Lincoln Savings and Loan of Irvine, California, relocated to Arizona from Cincinnati in 1976 and, along with McCain’s father-in-law, sponsored McCain’s first campaign for Congress in 1982 after the high profile former prisoner of war moved to the state in search of a political career.

The first memo that John McCain received from his campaign consultants was filled with instructions that did not quite rise to the level of strategy: Make sure to register to vote, obtain an Arizona driver’s license, and open a bank account in the state. “To achieve your immediate goal of establishing yourself in the community, you should join at least one veterans’ organization and one service organization such as Kiwanis or Jaycees,” Jay Smith and Mark Harroff advised their client on April 13, 1981. “The last step in this initial phase is to join a church, as well as its men’s auxiliary.”[i]

Arizona was at the core of the nationwide savings and loan (S&L) fraud and no one among the Keating Five was closer to Keating than McCain. Arizona Senator Dennis DeConcini was another member of the Keating Five, along with John Glenn of Ohio, a former astronaut, and Senators Don Riegle from Michigan and Alan Cranston of California. The Senate Ethics Committee censured Cranston in 1991, citing the others for questionable conduct and McCain for poor judgment though some of the political support McCain provided to Keating came while he was in the House and escaped scrutiny by the Senate.

The five senators’ campaigns and causes received a combined $1.3 million from Keating,[ii] including $112,000 in McCain campaign contributions. That figure understates Keating’s role in McCain’s political success and ignores the fact that there were two infamous meetings with S&L regulators and McCain attended both.[iii] Keating family members and employees made 40 donations to his first Congressional campaign, at least 32 to his second (in 1984) and at no less than 45 contributions when he ran for the Senate in 1986. Within five months of his election to Barry Goldwater’s seat in the Senate, McCain attended two meetings with S&L regulators to plead Keating’s case. The result became the nation’s largest bank fraud with the failure of over 1,000 federally insured institutions.

Accompanied by their daughter and a baby sitter, the McCains made nine vacation trips aboard a jet owned by Keating’s company, including numerous trips to Keating’s posh retreat in the Bahamas. Only after the S&L scandal surfaced years later did McCain reimburse Keating for the flights. McCain’s wife and father-in-law also invested $359,100 in a Keating shopping mall deal. Their profit remains unknown.

In the lead up to Lincoln’s collapse, Keating hired a law firm who retained Alan Greenspan, then a consultant, to certify the financial soundness and prudence with which Keating was managing the S&L. Though Greenspan has since conceded he is embarrassed by his failure to foresee what transpired, he also claims that his conclusions today would be the same as then if confronted with the same evidence.[iv]

The lessons to be drawn from this scandal extend well beyond the questionable conduct of a few senators and consultants. Understanding the role of these five high profile “assets” in a 20-years ago fraud is less important than grasping the relationships at work in the shadows and seeing how criminality can proceed in plain view obscured by a combination of lengthy pre-staging and trans-generational relationships known only to the participants.

The S&L fraud illustrates how this syndicate operates in a nonlinear fashion. The paucity of straight-line evidentiary trails makes it difficult to detect, much less indict and prosecute. Thus the need to describe, if only in summary, the overlapping relationships shared by this massive fraud’s most visible members: the Keating Five.

Pillaging a Financial Sector

From their origins in the 1800s, savings and loans could make only home mortgage loans. In federally chartered thrifts, depositors’ accounts were insured at a low threshold. During the Carter presidency, stagflation caught S&Ls borrowing at high interest rates (to attract depositors) and lending at low rates—due to mandatory ceilings on interest rates. When oil prices doubled in response to the Iran hostage crisis of 1979, inflation drifted into double digits.

In response, Carter repealed the interest rate ceiling, expanded the types of loans S&Ls could make and raised the limits on federal deposit insurance to $100,000 from $40,000 per account. Regulators then reduced the net worth requirements for S&Ls and removed limits on brokered deposits—the “hot” money S&Ls attracted by offering high interest rates to depositors.

Reagan’s subsequent enactment in 1981 of tax incentives for real estate investment catalyzed a lending boom that led to overbuilding. The resulting bubble led to more S&L loans secured by inflated values. Not only did regulatory changes mask the insolvency of troubled S&Ls but relaxed ownership rules disconnected S&Ls from the communities and the local owners they were originally designed to serve.

By December 1982, a bill sponsored by Utah Senator Jake Garn gave S&Ls even greater latitude, allowing them to lend for commercial mortgages and make business loans. In response, key states such as California, Texas and Florida allowed state-chartered S&Ls to invest in any venture. As this “race to the bottom” gained momentum, bad loans surged along with taxpayer liabilities on federally insured deposits.

By April 1987, when the Keating Five met with bank examiners who sought to shut down Keating’s operation, taxpayer liabilities were soaring as insolvent S&Ls continued to accept taxpayer-insured deposits while making bad loans. During the two years that Lincoln stayed open after that McCain-arranged meeting, the cost of paying off its federally insured depositors grew to more than $2 billion.

Did this Fraud “Just Happen”?

Just as Congress sought to contain the spiraling losses of S&Ls, Keating’s law firm retained Alan Greenspan in late 1984 to appraise Lincoln. A former chairman of President Gerald Ford’s Council of Economic Advisers, Greenspan portrayed Lincoln as “a financially strong institution that presents no foreseeable risk to depositors or the government.” At that point, he was probably correct, assuming he had no knowledge of the control fraud then being pre-staged by Milken, Keating and their co-conspirators.

More than 21,000 U.S. investors lost $285 million when the parent corporation of Lincoln S&L went bankrupt. Most of those defrauded were elderly pensioners who found they held worthless junk bonds that they believed were deposits in a federally insured thrift. Some who lost their life savings committed suicide while Keating, a staunch Catholic, donated $1,250,000 to Mother Teresa in India. She later provided a character reference to the presiding judge in Keating’s trial. Congressman Jim Leach of Iowa, a member of the House Banking Committee, had a different opinion, calling Keating a “financiopath.”[v]

Taxpayers were stuck with nearly $3 billion in Lincoln’s losses on the Greenspan-obscured, McCain-enabled, Keating-led, Milken-controlled fraud.[vi] Those losses were recognized only after the future Federal Reserve chief wrote an opinion lauding Lincoln’s managers for bringing the S&L “to a vibrant and healthy state, with a strong net worth position.” The Keating Five, in turn, cited Greenspan’s assessment when arguing Keating’s case.[vii] As the senators’ success deepened the S&L crisis, bailout costs grew, worsening the nation’s fiscal condition.

Prior to his retention in late 1984, Greenspan had amassed a reservoir of political capital that he drew on for his Keating assignment. In 1983, the Greenspan Commission took the political heat off Congress by recommending changes to Social Security, the “third rail” of American politics that few elected officials dared touch. Greenspan’s formula for reform, since enacted: Work longer and pay higher payroll taxes.[viii]

At the urging of Michael Milken, Keating also retained Dan Fischel who rated Lincoln’s risk of bankruptcy at less than one in a million. In retrospect, Lincoln’s insolvency was assured because it was designed from the outset as a control fraud by Milken.[ix]Fischel praised Greenspan’s help in recruiting the Keating Five as “a model of how democracy is supposed to work.” Mirroring Greenspan’s belief in the flawlessness of financial markets, Fischel assured legislators, regulators, depositors and the public that fraud in the S&L industry was not just improbable but impossible.[x]

Viewing the world through a Greenspan-Fischel mindset, it becomes easy to see how, once again, criminality becomes systemic by displacing facts with what people can be induced to believe. The combination of deception and self-deceit makes for a particularly potent form of fraud when imbedded in academia, endorsed by think tanks, promoted in the media and written into law. When Fischel gave a clean bill of health to Keating’s operations, he screened his analysis through his belief in the innate perfection of financial markets.

From Fischel’s perspective, firms auditing S&Ls would never risk their reputations by issuing fraudulent reports. That belief, of course, has often been proven false by massive frauds at Enron and elsewhere.[xi] In Fischel’s perfect-market world, stockholding by executives like Keating perfectly aligned the motives of managers with shareholders, excluding any possibility of executive fraud, a belief disproven by executives at Worldcom, Tyco, Adelphia and elsewhere. Lastly, any losses found by regulators were irrelevant in appraising a firm’s value because that information was already taken into account in financial markets’ assessment of risk and perfectly reflected in the share price.[xii]

That textbook “consensus” analysis would be comical were its results not so tragic—and were that market fundamentalist mindset not shared by a well-placed cadre of True Believers (such as Greenspan) who deploy that worldview when wielding influence over the lives of others. The gap between facts and beliefs could not be more transparent as beguiling theory trumped real-world results. That gap—that domain between facts and beliefs—is where the people in between wage unconventional warfare.

With the 1988 election of George H.W. Bush as president, new S&L oversight agencies were created along with the Resolution Trust Corporation (RTC) to handle insolvent S&Ls. As this real estate investment “pump” turned into a financial liquidation “dump,” the RTC readied for sale more than $400 billion in distressed properties. Of the $153 billion in S&L losses, taxpayers covered $124 billion with funds that Washington borrowed—backed by taxpayers’ full faith and credit.[xiii]

As typified by the S&L fraud, this gap—between facts and theory— is the realm where the people in between inflict serial financial frauds on a trusting public led to believe in a consensus worldview hyped by academia, think tanks, media and policy makers. Those frauds have now been internalized (through education) and institutionalized (by law) as this perfect-market mindset expanded to scale under the guise of globalization overseen by the World Trade Organization (WTO). As consensus beliefs became systemic, so did the criminality they enable.

Fischel went on to publish Payback in 1995. His premise was simple: the federal prosecution of swindler Michael Milken was “anti-Semitic.” A discreet few years later, Fischel was appointed Dean of the University of Chicago School of Law. It was there that the dominant “Chicago model” emerged before morphing into a “law and economics” policy environment known worldwide as the fast-globalizing “Washington” consensus. As this belief-enabled financial fraud grew to global scale, the U.S. was portrayed as guilty by association. (See Chapter 6.)[xiv]

The Ohio Connection

Keating and Greenspan also recruited Ohio Senator John Glenn to help obscure this fraud behind a veneer of self-serving economic theory. Comparable to McCain’s status as a war hero, Glenn’s political capital became apparent after he was given a Manhattan ticker-tape parade in February 1962 as the first American to circle the Earth aboard the Friendship 7 spacecraft. Six weeks after the Kennedy assassination in November 1963, Glenn retired from the National Aeronautics and Space Administration (NASA) to enter politics. First elected to the Senate in 1974, he served four terms before retiring in 1998, including an election victory after the Keating Five scandal.

In keeping with the modus operandi by which this systemic corruption is sustained (through fields-within-fields of relationships), we find here a relationship between Glenn and Cincinnati’s Carl Lindner, Jr. for whose financial services firm Keating served as general counsel before moving to Arizona. In addition to aiding the Lindner-associated fraud at Lincoln, Glenn joined Kansas Senator Bob Dole in demanding that Mickey Kantor, President Bill Clinton’s trade representative, initiate a trade investigation on behalf of Lindner-controlled Chiquita Brands International. Kantor authorized the investigation in October 1994. By year’s end, Lindner and his executives had contributed $250,000 to the Democratic Party.

On the surface, the trade dispute involved Chiquita’s desire to halt a European program favoring the import of bananas from former colonies in Central/South America and the Caribbean. That trade preference not only assisted the poor in underdeveloped countries such as Jamaica, Belize and Surinam, but also helped dissuade their residents from turning to drugs as a more profitable cash crop.

The Lindner initiative was notable as the first U.S. trade dispute filed with the World Trade Organization (WTO). Known worldwide as “the banana war,” the dispute involved a product exported not from the U.S. but from third world countries where Chiquita’s predecessor, United Fruit, had a notorious reputation for political bribery and human rights abuses. That record remains well known in Europe and was widely cited in news reports to associate U.S. trade policy (and the Washington consensus) with the company’s notoriety.

The fact that Lindner was a member of the Forbes 400 richest Americans—Forbes put Lindner’s 2008 wealth at $2.3 billion—only made the dispute all the more damaging to America’s stature. Washington’s insistence on protecting Lindner’s financial interest offered a high-profile example of successful influence-peddling. The Lindner-championed dispute showed that the U.S. had no regard for the impact on the poor that accompanies the perfect markets theory underlying the WTO and its enforcement of trade policies based on the market fundamentalism known as the Washington consensus.

In November 1998, U.S. Trade Representative Charlene Barshefsky proposed 100% tariffs on various European imports to the U.S. unless restrictions were eased on the import of Lindner’s bananas. During that period, Lindner emerged as a business partner at American Heritage Homes, a Florida builder, with Terry McAuliffe, co-chairman of the 1996 Clinton-Gore re-election committee and the Democratic Party’s “greatest fundraiser in the history of the universe” according to then Vice President Al Gore.[xv]

Despite Lindner’s Democratic connections he, along with Richard and Robert Lindner, in 1995 and 1996, gave $332,000 to Republicans in “soft” money not subject to limits on amounts given directly to candidates. The Lindners also made more than 450 additional contributions.[xvi] Such “double giving” to candidates of both parties is a sign not of political activism but of outright influence peddling.

Lindner-related political contributions illustrate how, by doubling the dollar limit on individual campaign contributions, McCain-Feingold “reform” enhanced the influence of the most influential such as John Glenn constituent Carl Lindner. According to Federal Election Commission reports on the 1996 election cycle, Lindner, his extended family and his executive corps gave to House and Senate campaigns in no less than 35 states.[xvii]

The list of people with the surname Lindner who made political contributions during this trade dispute include, in alphabetical order: Alan, Alan B., Betty, Betty J., Betty Johnston, Betty R., Carl, Carl H., Carl H III, Charlene, Charlene W., Courtney, Courtney O’Neal, Courtney O’Neil, Craig, David, Edith, Edith B., Edyth B., Frances, Frances R., Keith, Keith E., Martha, Martha S., Paul, Paula, Richard, Richard F., Robert D., Robert D. Jr., Robert J., and S. Craig Lindner.[xviii]

Though John Glenn assisted a constituent with what was ostensibly a trade dispute, the facts suggest that the long-term strategic impact was even more successful. Lindner’s high-profile “banana war” portrayed America abroad as a bully willing to deploy its superpower status to benefit a politically well-connected few (with operations outside the U.S.) to the detriment of the poor in the world’s poorest countries. The Lindner dispute also showed that U.S. insistence on WTO rulemaking could be deployed for a price that only the most well-to-do could afford.

The Michigan Connection

Elected to the House in 1966 and to the Senate 10 years later, Don Riegle chaired the Senate Banking Committee during the Keating Five fraud. After the scandal became public, he declined to stand for reelection. The nonlinear trail involving Riegle’s role requires that one begin at the end of the fraud and examine who benefitted from repossessed S&L properties sold at distressed prices.

A primary purchaser was Sam “The Grave Dancer” Zell of Chicago. The Blackstone Group, a private equity firm led by Stephen Schwarzman, acquired Equity Office Properties, Zell’s Real Estate Investment Trust (REIT),[xix] in November 2006 for $36 billion. At the time, it was the largest-ever leveraged buyout (leverage means that the buyer used borrowed money). By then, Zell’s REIT owned 590 buildings and 105 million square feet of office space in major metropolitan markets. Many of those properties were either built or bought with tax subsidies provided by the deficit-financed policies of the Reagan era. (See Chapter 6.)

Zell used part of his proceeds to buy control of the Tribune Company, owner of the Chicago Tribune, the Los Angeles Times and 30 other newspapers and television stations.[xx] The company was “put in play” following a joint bid by Los Angeles billionaires Eli Broad, a Michigan native, and supermarket investor Ron Burkle. Broad was the co-founder of Michigan’s Kauffman & Broad (now KB Home), a publicly traded homebuilder that annually constructs 40,000 modestly priced homes. None of the three bidders (Broad, Burkle or Zell) had previously shown any interest in media properties.

Broad diversified his home construction portfolio in the 1960s when he took KB Home public and moved to Arizona where he sold retirement plans through SunAmerica Insurance. He then relocated to California where he became chairman of Alan Cranston’s first campaign for the Senate in 1968. Since 1995, Don Riegle has been an adjunct professor at the Eli Broad School of Business at Michigan State University.

Zell pioneered “securitization” of the REIT industry by bundling mortgages into mortgage-backed securities and selling them like bonds. That financial innovation catalyzed a trend that took REITs from $6 billion to $150 billion during the 1990s.[xxi] In the real estate downturn, developers fared best “who went public and paid down their debt with investor capital.”[xxii] Frequently those investors were retirement plans.

Zell emerged in the early 1990s as a primary purchaser of Resolution Trust Corporation (RTC) properties. As the RTC unwound the S&L crisis, the Grave Dancer earned his nickname by acquiring distressed properties at fire-sale prices while using his REIT to raise acquisition capital. In January 2000, he conceded “You’ve seen the beginnings of oligopolization in our industry.”[xxiii]As chairman of the Senate Banking Committee, Don Riegle enabled that oligopolization.

Oligopoly—an economic condition in which there are so few suppliers of a particular product that one supplier’s actions can have a significant impact on prices and on its competitors.

Fields of Overlapping Relationships

In October 1973, Vice President Spiro T. Agnew resigned. His replacement, Michigan Congressman Gerald Ford, became president in August 1974 when Richard Nixon resigned as part of the Watergate scandal that ended his presidency. The back-to-back Agnew-Nixon resignations made Ford the second unelected president in 11 years, following Lyndon Johnson in November 1963.

 Ford’s domestic policy adviser was William Seidman, former finance director for Michigan’s Mormon Governor George Romney. A decade later, in 1985, President Reagan appointed Seidman chair of the Federal Deposit Insurance Corporation (FDIC), the oversight agency for S&Ls.[xxiv] President George H.W. Bush then appointed him chair of the Resolution Trust Corporation where Seidman oversaw the sale at knockdown prices of more than $400 billion in S&L assets—a key source of the real estate fortune amassed by Sam Zell.

When Ford became president, Mormon Warren Rustand became his appointments secretary and cabinet secretary.[xxv] Ford and his wife, Betty, routinely vacationed at Rustand’s home in Tucson, Arizona.[xxvi] Rustand’s home adjoined the residence of Jim Click, son-in-law of Holmes Tuttle who, as head of Ronald Reagan’s Kitchen Cabinet, supported the actor’s 1966 campaign for governor of California.

Other key beneficiaries of the nationwide S&L fraud included bankruptcy lawyer David Bonderman who had recently succeeded Richard Rainwater as chief adviser to Texas S&L investor Robert Bass. In 1986, when George W. Bush’s bid for the Texas Rangers baseball team was in trouble, baseball commissioner Peter Ueberroth stepped in to broker a deal with Rainwater who was asked to assist the deal “out of respect” for former President Bush. In return for 1.8% of the funds invested, the future President Bush received 10% of the team’s equity, eventually converting a $606,000 investment into a $15 million gain when the team was acquired for $86 million in 1989.

Of the amount invested, Bush borrowed $500,000 from a Midland, Texas bank where he served as a cameo director. That loan was repaid after Harken Energy Corporation, with no experience either overseas or in offshore drilling, signed an offshore oil exploration contract with the government of Bahrain. That deal raised eyebrows in the industry because Harken had neither the skills nor the equipment for the job. Bush sold his stock at the pumped-up value, leaving other investors to suffer the downside when the deal fell through and the value of the stock plummeted.

In 1988, Bonderman brokered an S&L deal for Robert Bass. By investing $150 million in American Savings Bank, Bass made billions when they sold it. As Bonderman conceded, “The government absorbed all the losses.”[xxvii] Bonderman has since emerged as a founder of Texas Pacific Group, a private equity firm. In 2006, “TPG” topped the nation’s leveraged buy-out firms with 17 deals worth $101 billion.[xxviii] The Chinese State Administration of Foreign Exchange entrusted TPG with $3 billion to manage, giving TPG $25 billion to invest in leveraged deals.[xxix]

Forbes estimated Bonderman’s 2008 wealth at $3.3 billion. Prior to having joined the Robert M. Bass Group in 1983, he was a bankruptcy specialist in the Washington, D.C. law firm of Arnold & Porter (previously Arnold, Fortas and Porter). Don Riegle serves as a senior strategist for APCO Worldwide, a public relations firm founded by Arnold & Porter with 23 offices worldwide.

The California Connection

Senator Alan Cranston was the only member of the Keating Five censured by the Senate Ethics Committee for “improper conduct.” Initially elected to statewide office as California controller in 1958, he was elected in 1968 to the first of four six-year terms in the U.S. Senate. Popular among his fellow senators, Cranston served as Senate Whip (assistant leader) from 1977 until 1991, when he was censured.

When California experienced a surge of S&Ls after the Reagan-era reforms sponsored by Jake Garn, Cranston pressured federal regulators on behalf of Irvine-headquartered Lincoln S&L. In searching for the connective threads in this nonlinear phenomenon, the most obvious candidate was Californian Eli Broad. A homebuilder in his native Michigan, Broad amassed a second fortune selling pension plans in Arizona in the mid-1960s.[xxx] He then relocated to California where he befriended Alan Cranston and chaired his first Senate race.[xxxi]

In 1998, Broad sold SunAmerica Insurance to American International Group, then led by Maurice (“Hank”) Greenberg, for $18 billion, netting $3.4 billion for his 19% stake. With Henry Kissinger chair of its international advisory board, A.I.G. saw a $40 billion surge in its market capitalization in the wake of 9/11. As capital markets recalibrated for risk following that event, investors dumped stocks and sought bonds. A.I.G. had apparently been sufficiently prescient to invest 93% of its $700 billion-plus portfolio in bonds, compared with the portfolios of its three primary competitors which were invested 55-60% in bonds.[xxxii]

In 2008, the Forbes 400 ranked Broad 42nd on its list of richest Americans and 145th among the world’s billionaires with $6.5 billion.[xxxiii] The bid by Broad and supermarket magnate Ron Burkle for the Tribune Company enabled its purchase by Sam Zell who reinvested a portion of the proceeds from his sale (to the Schwarzman-led Blackstone Group) of properties acquired years earlier from the Seidman-led Resolution Trust Corporation.

Two decades after the Keating Five became only a footnote in financial history, the people in between again emerged unscathed operating, as Zell aptly put it, as a national real estate oligopoly. Multiple decades of steady financial concentration have been parlayed into what is fast becoming a national media oligopoly dominated by the people in between that may succeed in placing in the White House another pro-Israeli asset.

In the intervening years between the S&L fraud and the Zell sale to Schwarzman, in 1987 Ronald Reagan appointed Keating consultant Alan Greenspan chairman of the Federal Reserve. Known for oracle-like utterances that roiled financial markets, Greenspan will be remembered not for the $8.5 million he received for his memoirs but for his insistence on maintaining the low interest rates that triggered a global credit crisis. That crisis is expected to generate $1 trillion-plus in financial losses worldwide, ensuring a lucrative investment opportunity for the next generation of Grave Dancers.

As Guilt by Association goes to publication, more than 15 million American homeowners face mortgage debt greater than the equity in their homes. As this latest pump-and-dump unwinds, the same network of syndicate operatives is emerging again to profit from both the upside and the downside. Keating remains unrepentant, claiming it was not he but government regulators who were responsible. A 2004 compilation of essays agrees: The Savings and Loan Crisis: Lessons from a Regulatory Failure.[xxxiv]The book is available on the Milken Institute website for $175.

William Black offers a different perspective. Former general counsel to the Federal Home Loan Bank Board during the S&L crisis, he documents Keating’s conduct as a “control fraud” engineered by Milken. Now a professor at the University of Missouri, Black published a 2005 book featuring a title more consistent with the known facts: The Best Way to Rob a Bank is to Own One, available on for $15.[xxxv] The Milken Institute does not offer Black’s book.

[i] Sasha Issenberg, “McCain’s identity formed as first term Congressman,” The Boston Globe, May 30, 2008. The late Mark Harroff previously served as press secretary for Senator William Cohen (1973) until establishing Smith and Harroff in 1973, a political consulting and public relations firm with experience in more than 100 Republican campaigns.

[ii] Richard L. Berke, “Four Senators Deny Doing Favors For Keating in Exchange for Cash,” New York Times, November 17, 1990.

[iii] Amy Silverman, “Postmodern John McCain: the presidential candidate some Arizonans know—and loathe,” Phoenix New Times, August 7 2008.

[iv] Head of an economic forecasting firm, Townsend-Greenspan & Company, Greenspan was retained by the New York law firm of Paul Weiss Rifkind, Wharton & Garrison to conduct a study of the thrift industry and make a recommendation concerning the scope of direct investments made by Lincoln Savings and Loan. Nathaniel C. Nash, “Greenspan’s Lincoln Savings Regret,” New York Times, November 29, 1989.

[v] Margaret Carlson, “Keating Takes the Fifth,” Time, December 4, 1989.

[vi] See “The S&L Crisis: A Chrono-Bibliography,” posted online by the Federal Deposit Insurance Corporation at

[vii] Questioning how Keating Five Senators could rely on his analysis to justify their intervention, Greenspan asks, “How could anyone use any evaluation I would have made in early 1985 as justification more than two years later?” Nathaniel C. Nash, “Greenspan’s Lincoln Savings Regret,” New York Times, November 29, 1989. Questioning the depth of journalistic analysis, other commentators note, “We should all be the targets of such investigative reporting.” Robert Kuttner, “Alan Greenspan and the Temple of Boom,” a book review in New York Times, December 17, 2000.

[viii] The government then borrowed those tax receipts, enabling higher government spending. By 2000 the Social Security payroll tax was the largest tax paid by 80% of wage earners. Levied at a flat rate regardless of income, that tax remains the nation’s most regressive, taxing most those who can afford it least. For 90% of Generation X (born 1965 to 1982), the payroll tax became their largest tax while also raising labor costs and pushing jobs offshore.

[ix] Keating operated as a directed agent in a ‘control fraud’ orchestrated by Michael Milken, Carl Lindner and others yet to be identified who reportedly instructed Keating which bonds Lincoln S&L would purchase with its deposits, creating a captive market for Drexel’s junk bonds while shifting to taxpayers the risk of default.

[x] Greenspan was a colleague and disciple of free market philosopher Ayn Rand (Alisa Rosenbaum), a Russian émigré novelist and advocate of radical individualism and unfettered laissez-faire capitalism best known for her authorship of The Fountainhead (1943) and Atlas Shrugged (1957).

[xi] “Jack Atchison. In 1986 and 1987 Atchison was a managing partner of Arthur Young & Co., the accounting firm that audited Lincoln. Under Atchison’s direction, the thrift got a clean bill of health. Later Atchison took a $930,000-a-year-job as a vice president with Lincoln’s parent company, American Continental Corp.” Margaret Carlson, “Keating Takes the Fifth,” Time, December 4, 1989.

[xii] As University of Texas-Austin Professor James K. Galbraith points out, Greenspan was “not just a run-of-the-mill conservative but a philosophical extremist” in the perfection he ascribed to financial markets. James K. Galbraith, “The Free Ride of Mr. Greenspan,” The Texas Observer, February 23, 1996.

[xiii] The figures apply to losses incurred between 1986 and 1995. See Timothy Curry and Lynn Shibut, The Cost of the Savings and Loan Crisis: Truth and Consequences, FDIC Banking Review, volume 13, no. 2, December 2000.

[xiv] University of Chicago Professor Leo Strauss emerged as the intellectual leader of the predominantly Jewish neoconservatives who advocated war with Iraq. The role of bias ranks in influence with that of belief in displacing facts with fiction. See Kalle Lasn, “Why Won’t Anyone Say They’re Jewish?” Adbusters, March/April 2004.

[xv] Gore quoted in Michael Weisskopf, “The Kingmaker,” Time, May 28, 2000. In 1997, through Gary Winnick, a former Milken colleague at Drexel Burnham Lambert, McAuliffe bought a $100,000 stake in Global Crossing prior to its initial public offering. He sold his stake at the market peak in 1999 for $18 million. In February 2001, McAuliffe was elected chairman of the Democratic National Committee. Over the next four years, he raised more than $525 million. He had previously served as finance chairman for the Committee. His ties to Global Crossing compromised McAuliffe’s ability to attack Republican ties to the Enron scandal during the 2002 midterm congressional elections where Republicans won a majority in the U.S. Senate. A 1999 suit brought by the U.S. Department of Labor (Herman vs. Moore) alleged that, as part of a pension fund investment in Florida commercial property, McAuliffe received a 50% stake in a partnership in which he invested $100 and $38.7 million was invested by a pension fund for the International Brotherhood of Electrical Workers. Although union officials agreed to pay six-figure penalties for their role and the union was forced to pay $5 million for its lack of prudence, McAuliffe kept the $2.45 million he was paid for his $100 investment made by a company owned by him and his wife, the former Dorothy Swann. The property, acquired from the Resolution Trust Corp at $10 million below the appraised price, was one of the distressed properties held by American Pioneer Savings Bank, a S&L placed in receivership a year earlier at a taxpayer cost of $500 million. American Pioneer was owned by Richard A. Swann, Dorothy’s father, who McAuliffe first met as a 22-year old when Swann was finance chair of Florida’s Democratic Party. After helping Swann break a fundraising record, he was sent to California where he worked with Lew Wasserman and Walter Shorenstein. In 1995, he acquired a bankrupt home-construction business with the help of Carl Lindner’s American Financial Group. From 1991 to 1996, Lindner, along with his family and employees, donated $724,000 to Democrats. Paula Dwyer, “The Heat on Clinton’s Moneyman,” Business Week, December 22, 1997 (published by the Laborers International Union of North America). In partnership with Lindner, McAuliffe’s American Heritage Homes Inc. emerged as the second-biggest homebuilder in Orlando. In 2008, he reemerged as campaign chairman for Hillary Clinton. As Timemagazine explained in May 2000: “Not since Hollywood mogul Arthur Krim roamed the Lyndon Baines Johnson White House has one fundraiser done so much for one political family. He has raised more than $300 million for Clinton causes, including the presidential library ($75 million), Clinton’s legal bills ($8 million), Hillary’s Senate campaign ($5 million) and the President’s millennium celebration ($17 million).” See also Byron York, “McAuliffe’s Shady Business Past,” National Review, July 16 2002; Jeffrey R. St. Clair, “The Political Business of Terry McAuliffe,” Counterpunch, October 19, 2004. McAuliffe’s offer to purchase the Clintons a house in Chappaqua, New York as part of her Senate campaign was accepted and then rejected after an onslaught of negative media reports. Numerous reports suggest that McAuliffe’s personal wealth approaches $100 million. In early 1997, McAuliffe took offices in a Washington, DC building owned by Pacific Capital Group, a Winnick company. After Clinton endorsed Global Crossing in a Los Angeles political event, the company won a $400 million contract from the Pentagon after prodding from the White House. Winnick soon donated $1 million to the Clinton presidential library (the Pentagon later rescinded the contract). Much as Lindner contributed to both Clinton and Dole, Winnick contributed to both Clinton and G.H.W Bush. In 1997, Winnick paid Bush in Global Crossing stock for a one-hour speech in Tokyo for which Bush’s fee was $80,000. The value of Bush’s shares rose to more than $14 million. With its bankruptcy filing in January 2002, Global Crossing became the seventh largest filing in U.S. history. Between 1998 and 2001, Winnick sold some $600 million in Global Crossing stock while other executives sold an additional $900 million. Winnick also generated another $123 million through a financial “collar.” “As Global Crossing Sinks, Gary Winnick Stays Dry,” Business Week, October 22, 2001. Hours before the end of the first quarter 2001, Winnick engaged in a $375 million “capacity swap” whereby firms sold access to each other’s networks and booked the sales as revenues to exceed the consensus estimate of securities analysts. Michael Weisskopf, “Global Crossing: What Did Winnick Know?,” Time, October 7, 2002. Richard Perle was retained to assist in the sale of Global Crossing’s fiber optic network to Hutchinson Whampoa whose controlling shareholder, Li Ka-Shing, has close ties to the Chinese military.

[xvi] See American Politics Journal at

[xvii] Mike Gallagher & Cameron McWhirter, “Chiquita vice chairman, on canceling trip of Panamanian foreign minister: Contributions buy influence,” Cincinnati Enquirer, May 3, 1998, posted online at

[xviii] Ibid.

[xix] Average 2006 pay for the top 25 private equity and hedge fund managers was $570 million. Schwarzman was paid a reported $398.3 million in 2006 ($1,091,000 per day) and $350 million in 2007 ($958,904 per day). Associated Press, “Blackstone’s Chief Received $350 Million in Pay in 2007,” New York Times, March 13, 2008, p. C2. In a June 2007 initial public offering, Schwarzman retained a stake in Blackstone then valued at approximately $7.7 billion while cashing out an interest valued at ~$450 million that added to his personal wealth of $3.5 billion. Blackstone Group was founded in 1985 with $400,000 in capital.

[xx] Zell invested $315 million to acquire control of the Tribune Company, including a reported $13 billion in debt financed through an employee stock ownership plan leaving Zell with the right to buy up to 40% of the company in the future.

[xxi] The ability to bundle mortgages into securities was facilitated with tax law changes enacted during the Reagan era.

[xxii] The Wall Street Journal, January 23, 2004. The net operating loss carry-forwards from formerly bankrupt firms can shelter profits from tax. When combined with the tax shelter offered by depreciation, investments in distressed properties typically become self-financing provided one has access to acquisition debt, a financial need met by the sale of mortgage-backed securities, many of them acquired by tax-subsidized pension plans.

[xxiii] Published interview of January 31, 2000.

[xxiv] Enacted December 1982, the Garn-St. Germaine Depository Institutions Act of 1982 gave expanded powers to federally chartered S&Ls and enabled them to diversify their activities to increase their profits. Major provisions included: elimination of deposit interest rate ceilings; elimination of the previous statutory limit on loan to value ratio; and expansion of the asset powers of federal S&Ls by permitting up to 40% of assets in commercial mortgages, up to 30% of assets in consumer loans, up to 10% of assets in commercial loans, and up to 10% in commercial leases. The result divorced thrifts from the communities they were originally created to serve. William Seidman’s post as chief White House adviser to Gerald Ford for domestic policy was assumed by Stuart Eizenstat when Jimmy Carter defeated Ford for the presidency in November 1976. Carter’s failed domestic policy (“stagflation”) helped elect Ronald Reagan whose reform of the thrift industry was championed by Utah Senator Jake Garn, a Mormon (aka “the lost tribe of Israel”). Chairman of the Senate Banking Committee (1981-87), Garn named Danny Wall chairman of the Federal Home Loan Bank Board in July 1987. A principal craftsman of the Garn-sponsored legislation, Wall had served on Garn’s staff for 11 years.

[xxv] Rustand, like football player Ford, was a star college athlete. Student body president at the University of Arizona, Rustand became Arizona’s first Academic All-American in basketball in 1965. He has since served on nearly fifty boards of directors. He is currently managing director of SC Capital Partners LLC, a Newport Beach, California investment banking firm.

[xxvi] John Doe relocated to Tucson with his family in 1977 and was introduced to Warren Rustand, the politically prominent Mormon, who sought Doe out to play tennis and repeatedly inquired about his genealogy. On several occasions, Rustand reportedly sought to introduce Doe to former President Ford. Doe declined.

[xxvii] Henry Sender, “Breakfast with the FT: David Bonderman,” Financial Times, June 21, 2008. The financial leverage available to investors in S&Ls was steadily increased with each decrease in the net worth requirements from 5% to 4% of total deposits in November 1980 to 3% in January 1982 along with a 1981 change allowing troubled S&Ls to issue “income capital certificates” that were included as capital. When combined with the elimination of deposit interest rate ceilings, repeal of the statutory limit on loan to value ratio and the diversification of permissible lending activities, the S&L industry became an invitation to taxpayer fraud by the people in between. The “Southwest Plan” introduced by the Federal Home Loan Bank Board in 1988 disposed of 205 S&Ls with assets of $101 billion by consolidating and packaging insolvent Texas S&Ls and selling them to the highest bidder.

[xxviii] Peter Smith, “TPG tops buy-out league with $101bn,” Financial Times, December 27, 2006, p. 1.

[xxix] Henry Sender, “Breakfast with the FT: David Bonderman,” Financial Times, June 21, 2008.

[xxx] In analyzing the “fields within fields” of relationships through which this phenomenon operates, it became relevant that John Doe first encountered Eli Broad when a former Broad employee became Doe’s childhood physician at age six. That relationship commenced after his previous physician, an uncle, died in 1958 at age 42, reportedly of a cerebral hemorrhage. Dr. Robert T. Birndorf was the new physician’s good friend and also a former Broad employee. It was not until 1982 that Doe met Birndorf who orchestrated a sophisticated fraud committed against Doe that included Security Pacific Bank and the comptroller of Hewlett Packard. During the pre-staging of that fraud, Birndorf informed Doe that he and Doe’s physician had attended the same high school, college and medical school and that Doe’s physician had been the best man at Birndorf’s wedding.

[xxxi] In 1979, John Doe and his family relocated to Irvine, California where they became active in the Irvine First Ward of the Mormon Church. In 1980, Mormon Doug Skeen and his family moved to Irvine and bought a home nearby. Skeen became active in the First Ward men’s group where he took a keen interest in Doe, socialized with his family and became involved in his business. Doe also had an equity position in one of Doe’s companies and a financial stake in the Birndorf-Hewlett Packard fraud litigation. The evidence will show that Skeen and his cousin, Mormon Leo Beus, an Arizona attorney, were associated with serial frauds committed against Doe.

[xxxii] Author’s research from public sources. Founded in Shanghai to sell maritime insurance in the 1920s, in 1992 A.I.G. received the first foreign license to sell financial products in China. In the fourth quarter 2007, A.I.G. announced a $5.3 billion loss followed by a first quarter 2008 loss of $7.8 billion. Jenny Anderson, “A.I.G. says It Is Subject to Inquiries,” New York Times, June 7, 2008, p. B3.

[xxxiii] In May 2007, Howard Marks and Bruce Karsh, co-founders of Oaktree Capital Management, sold 16 percent of their Los Angeles money management firm on a private Goldman Sachs exchange, raising $1 billion. Each now has a net worth of $1.4 billion and both are members of the Forbes 400. Marks is a former assistant to Eli Broad at SunAmerica. In 1995, he and Karsh founded Oaktree with 2007 assets under management of $47 billion.

[xxxiv] James R. Barth, Susanne Trimbath and Glenn Yago, The Savings and Loan Crisis: Lessons from a Regulatory Failure (Kluwer Academic Publishers, 2004).

[xxxv] William K. Black, The Best Way to Rob a Bank is to Own One (Austin: University of Texas Press, 2005).