S&L role discomforts McCain
By Susan Taylor Martin, Times Senior Correspondent
Published February 24, 2008
One day in 1990, when John McCain was still a new U.S. senator from Arizona, I found myself in Phoenix warily sampling hors d'oeuvres of rattlesnake meat at a luxurious resort.
Its real name was the Phoenician, but it was known locally by another moniker: Club Fed.
Just a year earlier the Federal Deposit Insurance Corp. had seized the Phoenician, built by developer Charles H. Keating Jr. at the height of a savings and loan boom that had gone spectacularly bust. I was in Phoenix to do a story coinciding with the start of Senate hearings on whether McCain and four colleagues - "the Keating Five" - had improperly intervened with federal regulators on Keating's behalf.
McCain's role in the S&L debacle had received curiously little attention in the current presidential race until the New York Times mentioned it last week in a piece about his more recent ties to a female lobbyist. And there has been almost nothing to remind Americans of just how big a deal the S&L collapse was at the time or how much it cost U.S. taxpayers.
In Keating's case alone, more than $2-billion.
Like hundreds of S&L's nationwide, Keating's California-based Lincoln Savings & Loan took advantage of a dramatic loosening of regulations that was intended to help traditionally conservative S&Ls better compete with banks. The inevitable result: risky loans and extravagant ventures, perhaps none more so than the Phoenician.
"There has not been a hotel built like this in the world in the last 50 years," Keating bragged of his showpiece, sprawled across the base of Camelback Mountain on land leased from Charles Alberding who also owned St. Petersburg's Vinoy Park hotel.
With Keating supervising every aspect of the work, progress came neither cheap nor easy.
"Monday was always hell because that was after Mr. and Mrs. Keating toured the property over the weekend and got a lot of ideas," Gerry Murphy, the main contractor, told me.
On one occasion, workers laid expensive vinyl on the beauty salon floor only to rip it all up two days later when Mrs. Keating decided she preferred clay tile. The first architect was canned after he balked at the Keatings' demand to install bidets in every guest room at an added cost of $3,000 a room. He was followed out the door by five interior decorators.
The Phoenician was supposed to cost $200-million and open in 1985. Instead it opened in late 1988 at an estimated cost of nearly $300-million. The palm trees alone were $2-million.
Even as Phoenix celebrated its newest luxury hotel, which boasted seven swimming pools and a nightclub called Charlie Charlie's, critics warned that a white elephant had been born.
Keating "is getting the credit for the Phoenician resort, which opens Saturday while taxpayers take the risk," the Phoenix Gazette said in a prescient article on Sept. 28, 1988. Indeed, court records showed that the Phoenician increased the strain on Keating's financial empire, which was built on high-risk bonds backed by shaky ventures financed with Lincoln loans. As an incentive to peddle yet more junk bonds, salespeople were wined and dined at the Phoenician.
During the years Keating was planning his fabulous resort, he and associates contributed $112,000 to McCain's campaigns, paid for travel by McCain and his family (which McCain later reimbursed), and let the McCains vacation each year from 1983 through 1986 at Keating's home in the Bahamas.
Most controversially, McCain was among the five senators who in 1987 met with Ed Gray, chairman of the Federal Home Loan Bank board, and, a week later, with regulators in California.
Despite its worsening condition, the feds didn't seize Lincoln for another two years. The bailout cost $2.6-billion while thousands of Lincoln investors lost almost $200-million. All told, the S&L crisis cost taxpayers $160-billion.
In 1991, a Senate ethics commitee concluded that McCain showed "poor judgment" but violated no laws or rules in his dealings with Keating.
McCain, who claimed he was only helping a major Arizona employer, went on to back sweeping campaign-finance reforms.
The Phoenician - whose huge price tag caused concerns in 1990 that it couldn't survive - is today part of the Starwood chain and a AAA Five Diamond resort. And what about Keating, who served four years on fraud charges and called McCain a "wimp" for testifying against him?
At 84, Keating insists he could have saved Lincoln and paid investors if the government hadn't seized his property and sold it for dimes on the dollar. In 2006, he told the Cincinnati Enquirer he was again developing real estate. In Phoenix.
Susan Taylor Martin can be contacted at email@example.com.
[Last modified February 24, 2008, 00:53:55]
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