Money Talks Government regulators say S&L operator CHARLES KEATING looted his bank, but he says it was the regulators' incompetence that caused the $300 billion (or more) savings and loan disaster

By MARGARET CARLSON and Charles Keating

Q. When you were asked whether the money you contributed to the so-called Keating Five -- Senators Alan Cranston, Dennis DeConcini, Donald Reigle, John Glenn and John McCain -- influenced them to help you, you said, "I certainly hope so."

A. That probably was a dumb way to phrase it. I was participating in a system. I have never asked to give anybody money. A politician will come to me and say, "Will you make a contribution?" And they usually suggest a size for you to go out and try and collect. Now I didn't make all those contributions; I went out and collected them. I only contributed to the legal limit.

Q. Surely there's something in it for you. Senator Cranston was able to collect $850,000 over four years from you. Don't you get a little tired of being hit up?

A. You get tired of getting hit up again and again and again. But it's the political process. You know people compare me to, say, an individual who asks for help with citizenship papers for his mother, and he gets help. But the campaign chairman for the politician doesn't go ask him for money. The chairman goes where he sees there is a source of funds. So when I ask for something, I become a prospect for money.

Q. So then what did the Senators do for you?

A. All the Senators said was either hit Keating or finish the investigation, this had to be the longest examination in the history of the S&L business. If you can't go to the Congress to get relief from an agency that's gone haywire, what do you do? You live in a different country than I think we live in.

Q. You say you're broke, but how could you be when you and your family made at least $14 million in three years?

A. The Government knows, because they know all of our bank accounts, that my family and I probably have no net worth. Period. We're broke. Back in 1983, before I bought Lincoln Savings and Loan, we had a fair market value as a family of many tens of millions of dollars. We produced, we were making money, we had excellent assets. We took a failing S&L, we made $17 million in the partial year we first took it, pretax. We made $100 million the next year. Then the Feds started helping us run it, so we only made $80 some million in the third year. Their help intensified in '87, and we made about $60-plus million. In '88 they really came in and took us over, and in '89 they completed the confiscation.

Q. You act as if the Federal Government is just out to ruin your life. Not just your life but your depositors', and bondholders in American Continental Corp. who mistakenly assumed their investments were federally insured.

A. There's a lot of people who know that the Government goes haywire in a lot of respects. I'm fool enough to guess that the media would be the first one to know because you're looking at the HUD situation, you look at the IRS problems. Almost everything you scratch, there's a problem.

Q. You can look at the HUD scandal and see whose pocket the money is in. But you can't see any money in the pocket of Edwin Gray, the former Federal Home Loan Bank Board chairman, who fingered you. What's the motive?

A. It's the power, an ego trip. Ed Gray was ignorant, a person whose background was public relations, all of a sudden being put in charge of a $1 trillion industry. Where do you think they got these regulators? Off the streets, out of ads. They took this conglomeration of inexperienced and untrained people and they say, O.K., go out and cope with the Charlie Keatings who are diversifying the S&Ls. You've got a bunch of know-nothings trying to tell business people how to invest money.

Gray wrecks it and then says the greatest financial debacle in the history of the world is Keating's fault. They are not just taking down guys like me. In Colorado Springs the Government owns practically all the property, as they do in Arizona. You think all of this is occurring because of me? It's occurring because of incompetent, wrongheaded regulators. Not one program has saved one S&L. Maybe they didn't line their own pockets, but they're lining a lot of other people's pockets. They gave S&Ls away from October to December 1988. They are causing fortunes to be made by these assets that they're confiscating, being given into other people's hands for nothing. They took a hotel away from me, the Phoenician resort, that's probably the best hotel ever built in the U.S., and they've turned it into a Holiday Inn. Why doesn't the media ask, Good God in heaven, what's happened here? What if I'm right? That's what you're going to find out a couple, three years from now when my body's dead and my family's destroyed.

Q. But with these direct investments you were trying to have it both ways: you stood to make a lot, but if the investment went sour it was the taxpayer who bore the risk.

A. Mortgages are risky too. Let's say you have a billion dollars out in home loans, and the average rate on those home loans is 5%. But then rates go up and you have to pay more to attract deposits. So all of a sudden you're paying out 8%, but you're still catching 5% coming in. That loan's bad right now. You're out of business. There's no way you can ride that out.

Q. Lincoln made a $3 million profit the year before you bought it, when it was just in the business of making home mortgages.

A. Absolutely wrong. It had a profit because it sold a branch. Lincoln was a basket case.

Q. But the cure -- letting S&L operators make risky investments -- turned out to be worse than the problem.

A. A few, very few, miscreants were involved. Some guy buys windmills, another guy steals, another guy buys Cadillacs and provides whores and yachts for customers. But you do not have, according to studies by Professor George Benston and Alan Greenspan ((now Federal Reserve Board chairman)), a very significant part of the industry doing that kind of stuff.

Q. 60 Minutes showed you bragging about paying your secretaries $80,000 a year and giving a raise to $100,000 to one of your secretaries.

A. You're right, it's to be criticized. It was braggadocio and grandstanding. That isn't me. But I did that. You're right, and I shouldn't have done it. That was stupid.

Q. But you did pay high salaries in general.

A. It depends on what you mean. No, I disagree with that. Let's take secretaries. We pay $40,000, generally speaking, which is real high in the Phoenix market. Our girls would come in, perfectly qualified in shorthand and typing. We got the best obviously because we were paying them high. These girls would come in at 6:30 and 7 in the morning, they'd work until 6:30 or 7 at night -- 5 1/2, six days a week. They had two rules. One rule is that we didn't have smoking on the premises. The other one was that they had to wear dresses or dress nicely. You couldn't come in in jumpsuits and so forth. I had seen too many cases where they dress down for one another. The girls like it; we paid them for it.

Q. What about your son who had no experience, but was reportedly making $866,000 a year by the time he was 26?

A. I don't know where the 26 came from. My son ran an extraordinarily profitable real estate company, probably the largest in the United States, or close to it. Similar operations for profit in the land industry in those years would have rewarded the persons responsible way more than he was rewarded. All of us had loans, all of us put in our own money.

Q. Didn't the accounting firm of Leventhal & Co. report that your profits were on paper only and came from sham deals?

A. First of all, it's not an audit, it's not certified, it's an opinion of Leventhal based on files. They didn't look at the property, didn't kick the dirt, didn't talk to the buyer or the seller. And they opined that way for their best client, namely the 11th District of the Bank Board in California. They wrote down assets by fiat -- take something worth, say, $175 million and claim, no, it's worth $150 million.

Q. Don't you see in looking back that you don't have the temperament to be in a regulated industry?

A. Your question ignores the fact that countless others -- Sears, "Bum" Bright in Texas, Gordon Luce of Great American -- who have succeeded magnificently, including myself, in everything they've done have been unable to succeed in the savings and loan business. Now when all of us fail, certainly, somewhere, somehow, someone like you must understand that it isn't the inability to operate or inability to cope with the regulator. There's something wrong with the regulator.

Q. But let's face it, the Arizona real estate market went bad.

A. Not at all. There were no losses in Lincoln when it was taken over. We sold 200 lots in about seven months in one project. Since the Government took over, they haven't sold five of them. Don't tell me I can't sell real estate in bad times. I've always sold real estate in bad times. We'd signed contracts with the best builder in the country to put in subdivisions. We had U.S. Home doing an adult community project and some higher-priced homes up in the hills. We got Rubbermaid to move here, McKesson to move in. We had an airport just like Ross Perot's down in Texas. What in the name of God else do we have to do?

Q. You mentioned your Phoenician resort earlier. There are hotel people who say that the cost per room, the cost per golf-course hole at that hotel was higher than anything else in the area and that you could have never made the money back.

A. The Phoenician resort grossed $48 million in the first year of operation. Its occupancy rate was in the neighborhood of 76%. Hotels are a perfect hedge against inflation because you can raise the room rates every day. And what is critical is that its gross income, food, beverage, everything else, per room, was approximately $80,000.

My hotel is the complete perfect example of what they're doing when they take away assets from people. They came out in a midnight raid. They brought photographers, they brought the media, the police, the FBI. They raided that hotel, took it over, tacked termination notices on the doors of some 30-odd employees, including the general manager, at 1:30 in the morning. What in the hell do you think you're dealing with?

Q. You said that this whole thing with the Government has made you feel like | Richard Nixon.

A. I did? Well, if I said it, it's probably true. The Government is spending unconscionable amounts of money, they switch law firms like you switch coffee cups. Their whole purpose is to break us so we can't be heard. Their theory is a dead man tells no tales. It's no wonder nobody speaks up. They're afraid of going to jail. They're afraid of going more broke. And the Government's doing a fantastic job of making an example out of me for everybody else to shut up. These other owners would rather give away their savings and loans than lose their respectability, end up like I am, hounded, harassed, broke. I'm being slammed and ridiculed and called a thief and a bum and a liar. They even tied me into Noriega for forming a Panamanian company to do business in England. Nothing wrong with any part of it. The committee flat said I was doing drugs. Lincoln made a loan to Covenant House, and I waived one of the interest payments on the building which housed these poor kids, and the next thing I know I'm accused of funneling that money through the Knights of Malta, a high- placed Catholic society, to the Nicaraguan rebels to buy arms. This comes out of the Congress. You print everything that the Fed feeds you. The person they're talking about doesn't exist.

Q. What a way to end a career.

A. I would like to say one last word: I'd love to have Lincoln back. If I got Lincoln back, it would not cost the U.S. taxpayers one dollar, and all my bondholders would get paid off. Now if there are S&L losses like I'm saying -- many hundreds of billions of dollars -- why wouldn't it make sense to try with some of us, mainly me. Give us our assets back and let us work them out, see what happens.