The Book of Bastards (20 page)

Michael Deaver was a California lobbyist and political operative in Ronald Reagan's camp. He consulted on Reagan's run for governor of California, as well as his first and second presidential campaigns. Deaver also saved Reagan's life during the 1976 campaign by performing the Heimlich maneuver after the candidate had begun to choke on a peanut.

After Reagan won his second term in 1980, he had to coax Deaver into leaving California to work in his White House. Reagan felt so strongly about having Deaver onboard that he offered him the plum job of deputy chief of staff with responsibility for setting the president's schedule of speaking engagements and attendance at public events, and in charge of overseeing public relations efforts; it was a dream job for a one-time lobbyist with ambitions to be an even more powerful lobbyist
after
his public service was over. It gave him a level of access to the president only enjoyed by the other two members of what the press dubbed Reagan's “Troika” of closest advisors, James A. Baker III and Ed Meese.

As part of the “Troika,” Deaver served as White House deputy chief of staff under Chiefs of Staff James A. Baker III and Donald Regan. He became so essential that Reagan compared Deaver's May 15, 1985, departure to start his own lobbying firm to “an amputation.” But resign he did and he founded Michael K. Deaver, Inc. Meanwhile, he still received the (confidential) president's daily schedule and retained a White House pass.

Stemming from a March 3, 1986,
Time
magazine cover story, Deaver and his firm came under investigation for violations of the Ethics in Government Act of 1986. The legislation prohibits senior government officials from lobbying the government until two years after their departure. At his trial, Deaver claimed that his alcoholism caused memory blackouts that made him forget calls he made to government officials. The judge overseeing the case, however, barred this defense on the grounds that it was not substantiated by expert testimony. After twenty-seven hours of deliberations, Deaver was convicted of three counts of perjury relating to statements he made regarding lobbying on behalf of TWA, the Republic of South Korea, and Puerto Rico. Originally sentenced to three years in prison, Deaver eventually paid a $100,000 fine, did 1,500 hours of community service, and served three years' probation; of course, he didn't serve a day of his jail sentence.

To Deaver's credit he refused an offer of a pardon from Reagan before the president left office. He died of cancer in 2007.

As of this writing the memory of the Big Bank Bailout of 2008–2009 was still fresh. The fallout from this whopper of a government spending spree has sparked all manner of public outrage; ordinary citizens often ask jokingly, “Where's
my
bailout?” Banks that have been deemed “too big to fail” have received record amounts of federal loan money in order to stay afloat. Others like Goldman Sachs are already repaying their bailout money and once again handing out absurd payment packages to their highest-achieving traders. Many people who were enjoying the boom times of the early Bush-43–era deregulation of Wall Street banking have had plenty of reason to grouse as they watch their investments dry up. And yet it's not as if this sort of bailout of the improvident rich by the taxpayers hasn't happened before; it actually occurred recently, too.

Ladies and gentlemen, we give you the S&L Scandal of the late 1980s, complete with some very familiar family names!

Prior to the recent Wall Street bank bailouts of 2008 and 2009, the S&L Scandal was the largest taxpayer-funded financial institution bailout in U.S. history. It cost over $160 billion; nearly all of it was borne by the taxpayers. The bailout added to the ballooning budget deficits in the early 1990s; many see it as the main cause of the 1990–1991 recession (and by association, of President George H. W. Bush's election loss in 1992).

US S&Ls (short for “Savings & Loan”) were similar to British “building societies.” They were nonprofits that primarily, if not exclusively, made mortgage loans to ordinary working people. They were originally called “building and loans” and, in the prewar period, were most popular in the Eastern and Midwestern United States.

The actual causes (and there were more than one) of the S&L crisis are still under debate. Many blame the rampant deregulation of the Reagan era. It allowed many S&Ls to get into the same business as banks without the same credentials. In fact, many S&Ls couldn't have even made the grade under the same rigorous regulatory oversight that governed the banks. Deregulation also allowed these S&Ls to become for-profit, make riskier real estate loans, and invest in businesses in which they were not experienced.

Another major cause of the crisis was a practice known in the business as “over-leveraging.” Simply put, S&Ls lent far more money than was prudent when interest rates were high in the late 1970s.

There is a special place in Hell reserved for hypocritical bastards like Charles Keating. He swam at the All-American level in college and is now grandfather to five-time Olympic gold medalist Gary Hall, Jr. He was a happily married Arizona businessman and anti-pornography activist during most of the 1950s and 1960s. Today Keating is best known for swindling elderly investors and paying off several U.S. Senators to try and keep out of trouble with federal regulators.

The so-called “Keating Five” were five U. S. Senators — Alan Cranston (D–CA), Don Riegle (D–MI), Dennis DeConcini (D–AZ), John Glenn (D–OH), and John McCain (R–AZ) — who were implicated in a scandal involving Keating and his failed Lincoln Savings and Loan Association.

In 1984, Keating took over the Lincoln S&L, hoping to take advantage of recent deregulation. The changing laws would allow his business to invest its depositors' funds in high-risk real estate and speculative junk bonds. In 1985, however, the Federal Home Loan Bank Board (FHLBB) limited the amount of those types of investments to ten percent of the funds on deposit.

Keating fought back when the FHLBB began investigating Lincoln. He commissioned a private study by future Fed Chairman Alan Greenspan who said direct investments were a boon to S&Ls, not a risk. Keating also lobbied the Reagan administration to name his friend Lee H. Henkel, Jr. to the FHLBB in a recess appointment — which does not require Senate confirmation. Henkel resigned shortly after it was revealed that he had several large loans from Lincoln.

The Keating Five met privately with FHLBB Chairman Edwin J. Gray for two hours on April 9, 1987. They tried to pressure Gray to end the investigation of Lincoln. The Lincoln S&L later collapsed and cost U.S. taxpayers over $3 billion.

When news of the scandal broke, the Keating Five were investigated by the Senate Ethics Committee. Cranston received the harshest punishment meted out to the five: a reprimand. Riegle and DeConcini were rebuked for “acting improperly”; Glenn and McCain were criticized for “poor judgment.”

Three of the five — Cranston, Riegle, and DeConcini — declined to run for reelection after the scandal. Glenn has since retired. McCain is still in the U.S. Senate; he won the 2008 Republican presidential nomination, but ultimately lost the presidential election to Barack Obama.

Either way, he got what was coming to him. The legal consequences of his actions included millions in fines and four-and-a-half years in prison. He maintains his innocence to this day. Bastard.

“[John McCain] is a wimp.”

— Charles Keating

There is no question that President Ronald Reagan was personally honest. It was one of his many admirable qualities. And yet, as the previous chapters have illustrated, he did not always surround himself with people who reflected his own strongly held personal values. Take Franklyn C. “Lyn” Nofziger, for example.

A former newspaper reporter and editor, Nofziger served as Reagan's press secretary while he was governor of California and as one of Nixon's advisors. With Reagan in the White House in 1981, Nofziger served his old boss as an “advisor” in his new administration.

But Nofziger later left the White House to work as a lobbyist for the defense contractor Wedtech. And that was a problem. By the eighties, the folks at Wedtech were busy bribing public officials to land favorable consideration for Department of Defense contracts. To further complicate matters, Nofziger had steered a multimillion-dollar contract in Wedtech's direction before he left the Reagan White House. Here's the background.

The Wedtech Corporation was founded in the Bronx by a Puerto Rican immigrant named John Mariotta. The baby stroller manufacturer soon became a principal employer in an economically depressed part of New York City.

Mariotta brought in a business partner, Fred Neuberger, who later became majority shareholder. Even so, Wedtech claimed that Mariotta was still the owner; with a Puerto Rican man at the helm, it could continue to take advantage of no-bid Department of Defense contracts that were awarded to minority-owned firms. The company later began paying bribes in the form of company stock to state and federal government officials in order to get the contracts.

When an investigation ensued, numerous Wedtech executives pleaded guilty to bribery and conspiracy charges. They also began rolling on the government officials they had bribed. One of these officials was Mario Biaggi, a former New York City police officer who was first elected to Congress for the Bronx in 1969. He was convicted on fifteen federal felony charges including receiving bribes and obstruction of justice. Former U.S. Attorney General Edwin Meese III was also investigated for receiving bribes from Wedtech.

And then of course there was Nofziger, who was accused of improperly steering a $32 million small-engine contract to Wedtech in return for a job lobbying for the company. Nofziger was charged with violating the Ethics in Government Act which prohibits former government officials from lobbying the government within two years of their departure. Nofziger was convicted, but the verdict was overturned on appeal; the U.S. Supreme Court allowed the appellate court's decision to stand.

Wedtech declared bankruptcy and went out of business in 1987. Nofziger went on to run political campaigns for the likes of Pat Buchanan and Steve Forbes. He never spent a day in jail.