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Lincoln Savings and Loan

The Skimming of S&L Funds for the 1988 Bush Campaign


The Skimming and the Shredding

The following is the full original text of a letter I sent to the San Jose Mercury News on April 16, 1994. The only changes are the words in square brackets [ ], the HTML codings to highlight headings in red and quotations in blue, and conversion of underlinings into italics, also to improve readability.


TO: The San Jose Mercury News - 750 Ridder Park Drive, San Jose, CA, 95190

DATE: April 16, 1994

It seems I was incorrect in my April 8th, 1994 letter, at least with respect to Lincoln Savings and Loan, in suggesting that federal regulatory investigators were either incompetent or obstructing justice in not discovering and reporting the skimming of money for contributions to the 1988 Bush campaign. This was based on my assumption that the investigators were physically present in the offices of the S&L at the time the contributions were skimmed in late September or early October 1988. (The chronology of events cited on pages 340-345 of the book Trust Me: Charles Keating and the Missing Billions by Michael Binstein and Charles Bowden strongly suggests the money was skimmed during this time.)

On April 13th, 1989, Charles Keating took the American Continental Corporation (ACC) and number of the ACC subsidiaries into Chapter 11 bankruptcy, building a "legal wall between his assets and the federal government." (page 351) On April 14th, the Federal Government seized Lincoln Savings and Loan. Three days later, on the 17th of April, Michael Manning, a fee attorney for the Federal Deposit Insurance Corporation (FDIC), flew into Phoenix to head a team of lawyers and accountants in the construction of a RICO criminal case against Keating.

Where the skimming took place. Why did Manning fly into Phoenix and not Los Angeles where Lincoln was based? After he had taken over Lincoln in 1984, Keating had convinced someone in the [Republican] Deukmejian adminstration that the "back-room records" of Lincoln should be removed from California to a Lincoln S&L's office complex next to ACC's corporate headquarters on Camelback Drive in Phoenix. In April 1989, Manning and his team moved into offices in the Lincoln complex to begin a four-month investigation in a hostile city amidst a hostile [Republican] business community. Manning later described the Lincoln offices as a "dead zone" across a driveway from an ACC corporate headquarters building which was "humming with activity." All of "Lincoln's books seemed to have crossed to the ACC building, where shredding machines [ran] day and night" (p. 360) Manning could look out his window and "see trucks pull up and drive away with bags of shredded documents." (p. 6) Nonetheless, Manning and his team found enough documents to fill a 30,000 square foot archive and to convict Keating.

Where did the skimmed money come from? By the fall of 1988, ACC was having major cash flow problems. As far as I can determine from my reading of the book Trust Me, the primary source of operating funds for the corporation and the source of the funds that were skimmed for the Bush campaign probably came from the uninsured junk bonds Lincoln sold to between 17,000 and 23,000 people in southern California, defrauding them of in excess of $250 million dollars. I personally believe the actual amount of the fraud was tens of millions of dollars higher given the fact that there were no less than six bond issues from October 10th, 1988 to an unspecified date in January 1989, amounting to some $240 million dollars for this period alone. (Trust Me, pp. 340-345). However, Lincoln was selling these junk bonds as early as January 1988. The actual dollars that were skimmed probably came from the junk bond sales of July, August and September 1988; it is also probable these monies were paid to Keating, members of his family, and to ACC and Lincoln executives as bonuses or salaries, with the proviso that some portion thereof be skimmed off for the Bush campaign.

Investigative Leads -- Where to look for the "smoking gun." One way to determine if this occurred or not is to subpoena the checks and other documents from the Bush campaign or the Republican National Committee and to track these records back to the individuals who wrote the checks. This is easier said than done. After being burned during the Watergate investigations by the revelations of Herbert Kalmbach, there is every reason to believe the Republican Party developed a number of techniques to conceal the actual money trail in 1988. Whoever investigates this should look back at the 1985 and 1986 bundling of campaign money by Keating and his associates to determine how they did it then and then look for the same pattern in the 1988 skimming. In addition, Manning and his team were able to convince several ACC or Lincoln executives to turn states evidence in an effort to reduce their own criminal exposure. These people should be interviewed. Moreover, the 30,000 square foot archive of ACC and Lincoln documents still exists in Phoenix.

After reading of Michael Manning's difficulties in constructing a criminal case against Keating that would stand up in court, I can understand why a $100,000 campaign contribution could be lost in the paperwork of a several hundred million dollar fraud. However, Keating's $100,000 contribution to the Bush Campaign became public knowledge in early 1990 when the Republican National Committee released his name to Common Cause Magazine. Someone in one of the regulatory agencies should have asked for a separate investigation at that time focusing on this single point. No such investigation was initiated in 1990 or in the four years since then.

The Cover Up of a Cover Up. Why has there been no investigation? After the Reagan-Bush White House, Senator Jake Garn, and U.S. League of Savings Institutions made M. Danny Wall the new Chairman of the Federal Home Loan Bank Board (FHLBB) on July 1, 1987, they had a man in place who would contain a growing political problem until after the presidential elections of 1988. This is best described on pp. 238 and 239 of Overdrawn: The Bailout of American Savings by Michael A. Robinson:

After Wall joined the Bank Board, Keating's institution was allowed to remain open for an extra two years beyond the time that Jim Cirona and his staff wanted to take action. Indeed, the Bank Board transferred supervision of Lincoln Savings away from Cirona in San Francisco, in a move that stunned regulators throughout the country. Delays in closing Lincoln increased the eventual cost to the taxpayers, a price tag that approached $2 billion, and allowed Keating to sell worthless bonds to unsuspecting customers who thought they were getting federally insured accounts.

Wall's handling of Lincoln was not his only, and may not have even been his most serious, mistake. Whereas [Edwin] Gray constantly warned of an eventual taxpayer bailout, Wall consistently downplayed the scope of the industry's mounting losses. His gross miscalculations eventually had him at odds with his fellow board members, who were predicting much higher cleanup bills.

In addition, Washington insiders accused Wall, who was becoming a scapegoat for years of problem S&Ls, of intentionally misleading Congress and the American public about the size of the impending disaster until after the 1988 presidential elections, presumably to help George Bush's election efforts.

I believe that an investigation into the Keating contribution to the Bush Campaign, even after Bush had been elected President, would have revealed that Keating had skimmed these contributions from the uninsured junk bond sales of 1988. [Can you see the headlines?] This would have opened up the role of Wall and the members of his senior regulatory staff in Washington (and the White House?) in protecting Keating for two years after the San Francisco FHLBB had recommended the S&L be seized. [Can you see the headlines?] This in turn would have exposed the coverup of the true extent of the Savings and Loan Debacle until after the 1988 election and would have jeopardized Republican political chances in 1990 and 1992. [Can you see the headlines?]

But it is now 1994 and the coverup of the coverup has succeeded. There is a media feeding frenzy on Whitewater and Madison Guaranty. Tax returns and financial papers are examined in minute detail. All interpretations are negative. There are implications of massive improprieties and the Clintons are tried and convicted in the press on a daily basis.

What Really Went On. The true cost of Lincoln Savings and Loan to the American people is about $2.3 billion dollars. About $2 billion of this was or is in the federally-insured losses for which all of us will be paying over the forseeable future. The remaining $250 to $300 million dollars came from the life savings of about 20,000 people in Southern California who were stripped of their money by a con man who was under the protection of powerful politicians. The Keating Five senators took the major hit for protecting Keating, but their role in this after being informed of the 1987 criminal referral was relatively minor (go back and read the record of the things they actually did for Keating after this time.) Cranston, the most culpable of the Keating Five, left office in disgrace in 1992.

But who had the power to protect Keating after the criminal referral of April 9th, 1987? One of the clues to this is a note from Keating to Alan Cranston just eight days before Keating took ACC into Chapter 11 bankruptcy on April 13, 1989. Lincoln had lost $29 million dollars in the first three months of 1989 and Keating had been making frantic attempts to put together a deal to sell Lincoln and thus avoid a federal takeover. In the note, Keating says

"some politically important person [Cranston] has got to lay it on the line to Danny Wall and Jake Garn that they unescapably and must decisively approve this deal. [sic] They must do it in such a way that the forcefulness cannot be misunderstood." (Trust Me, p. 349)

Cranston, a member of the majority Democratic leadership in the Senate was the messenger; Wall and Garn, a member of the Republican minority in the Senate, represented the actual power. In Overdrawn, Michael Robinson provides a highly informative account of Wall (and Garn) before Wall was appointed chairman of the FHLBB on July 1st, 1987:

His thirteen-year employment for the conservative Republican senator taught Wall the inner workings of Washington that few regulators had ever witnessed firsthand. Many banking regulators were career bureaucrats or were rotating through the government on their way to better-paying jobs

As a key Garn staff member, Wall helped shaped [sic] the landmark Garn-St. Germain legislation deregulating financial services which many blamed for the current crisis that Danny Wall would now have to resolve.

This account tells us two important things: First, that some of the people in the regulatory agencies (read political appointees) were merely rotating through the regulatory agencies to higher-paid jobs. Second, and much more important, that much of the legislation de-regulating the Savings and Loan Industry President Reagan signed into law in 1982 was written in Jake Garn's office at a time when the Republicans had the Presidency, majority control in the Senate, and a working majority (with conservative Democrats) in the House. (Look at the key votes in both the House and the Senate in the early Reagan years.)

The Role of the Media in a Democracy. As a responsible newspaper, the Mercury News has an obligation to its readers to editorially ask the S&L regulatory agencies to investigate the 1988 skimming of money for the Bush Campaign If this does not occur, then the Mercury News should begin to ask some very pointed questions. If, for whatever reason the agencies decide not to investigate the skimming, there is nothing to stop you from assigning reporters to contact the ACC or Lincoln executives mentioned above to ask how the money was bundled to the Bush Campaign.


The "Whitewater" Standard


The Mercury News, the Knight-Ridder chain, and the other parts of the national media have to realize that a new standard of investigative reporting -- the "Whitewater Standard" -- has been established in the last three months. There is no going back. But this standard must be applied with equal vigor to all of the stories about the Savings and Loan Debacle, and not just to those about Clinton and his wife. If money was skimmed from Madison Guaranty to Clinton's campaign for governor of Arkansas in 1984, this was a crime. If money was skimmed from Lincoln Savings and Loan for the Bush campaign in 1988, this was a crime of the same magnitude.

But if the "Whitewater Standard" is not applied to both stories with equal force, then surely we are lost. This goes far beyond politics. The role of the media in a democracy is to inform; to provide the citizens in that democracy with a fair and unbiased presentation of the news so that those citizens can make informed decisions. Your coverage of Whitewater, and the coverage of the national media to date leads me to ask if this has now changed. You have a responsibility to answer the question: Is it the role of the media to inform or to indoctrinate? If you come down on the side of indoctrination, then the United States is no longer a democracy.

 Franklin R. Mancuso

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