By Amy Silverman
By Olivia LaVecchia
By Monica Alonzo and Stephen Lemons
By Chris Parker
By Michael Lacey
By Weston Phippen
In the past few years, the head of American Continental Corporation showed he was skilled at throwing his weight around--and he was proud of it. In fact, K-e-a-t-i-n-g became a new way to spell controversy in Arizona. Just last week, Governor Rose Mofford signed a bill aimed at stopping developers like Keating from using a "rent a cow" tax dodge. His Citizens for Decency Through Law, one of the nation's major anti-porn groups, was a dominant force in the election of such controversial officials as former Maricopa County Attorney Tom Collins.
Keating's financial empire crumbled last week with the filing for bankruptcy protection and the federal takeover of his huge California savings and loan. Many are gloating that his political power has been emasculated, too.
WHEN CHARLES KEATING asked politicians to jump, they would say, "How high?" The prime example was a private meeting on April 9, 1987, in the D.C. offices of Arizona Democratic Senator Dennis DeConcini. Arizona's Republican senator, John McCain, also was there. So were three other senators: John Glenn of Ohio, Donald Riegle of Michigan (the head of the Senate Banking Committee) and Alan Cranston of California. So were a squad of officials from the Federal Home Loan Bank Board, which for two years had been investigating Keating's major asset--Lincoln Savings and Loan Association, a California-based thrift. Keating bought Lincoln in 1984 and used its deposits to finance his real estate empire.
There were two ways to judge the clout in that room that night. One was the power of the five men elected to the country's most exclusive club. The other was the generosity of Keating to their election campaigns: McCain, $112,000; Riegle, $70,000; DeConcini, $43,000; Cranston, $41,900; Glenn, $34,000. (A year later, when the Detroit News broke the story of the meeting, Riegle returned the money.)
According to notes kept of that meeting, the bureaucrats sat through a long lecture led by Glenn and DeConcini. The gist was just what Keating wanted to hear: The feds should either charge the guy with banking irregularities or get off his back. (At a news conference called this week to explain the bankruptcy, Keating again blamed the feds and their probes of Lincoln as the source of his problems.)
But the warning signs of a financial collapse were posted at that meeting, as it turns out. The senators were told by the banking officials that Lincoln was using "unsafe and unsound" lending practices, that Lincoln was "flying blind on all of their different loans and investments." Glenn noted not everybody conducts business by the book, but he wondered, "Is their judgment good?" One of the federal officials replied: "That approach might be okay if they were doing it with their own money. They aren't. They're using federally insured deposits." When Riegle pushed for the bottom line, asking, "Where's the smoking gun?" a bank board official replied, "This is a ticking time bomb."
McCain would later say he was uncomfortable with the whole thing: "I wasn't sure what was going on. I stayed awake worrying about the appearance of impropriety." But DeConcini characterized the meeting as typical: "Just another example of elected representatives going to bat for a constituent who appeared to be getting pushed around by bureaucrats."
STATE SENATOR JOHN HAYS remembers the "constant pressure" from Keating's hired guns to stop the artificial-lakes bill in 1986. The Yarnell Republican wasn't sure at first that anyone could seriously defend using precious drinking water for a decorative lake when the state's new groundwater law demanded water conservation. His bill would have allowed developers to fill their lakes only with undrinkable water and would have closed a loophole that allowed developers to buy farmland and pump groundwater for lakes.
Opinion polls showed as many as 80 percent of the citizens said they wanted this squandering stopped. But Keating was the most devoted disciple of using lakes as a selling tool.
"He wanted to continue building artificial lakes with any kind of water that he wished, to use mainly potable drinking water," Hays recalled last week. "I guess his morals are great, but in business he's ruthless on stepping on you or running roughshod. He's not overly sensitive about other people's views and would do whatever was necessary to intimidate legislators."
Hays says he can't even guess how much Keating spent on the "hotshot lawyers" he hired to kill the lakes bill in 1986. But he got what he paid for. The bill didn't pass the legislature until 1988, after Keating had completed the major lakes he wanted (although those projects are now endangered by his bankruptcy).
But phony lakes weren't the only loophole Keating exploited. He also discovered, as have many others, that you could escape large property taxes if you just pretended that farmland you were holding for a future subdivision was still being used for agriculture. The tax break for farmland was intended to help farmers stay in business. But when that farmland was sold for development, it was supposed to jump in value unless the new owner could prove that fields were still planted or livestock were still being raised.