WASHINGTON -- Former banking regulator Edwin Gray turned the witness stand at the Senate Ethics Committee into a soapbox yesterday, saying Congress allowed the $500 billion savings and loan crisis to happen by succumbing to the pressures of the thrift industry's politically generous lobbyists.
Mr. Gray, former chairman of the Federal Home Loan Bank Board, came to the committee to answer questions about his April 1987 meeting with four of the so-called "Keating Five" senators, who are accused of pressuring him and other federal officials in hopes of easing investment rules for Arizona businessman Charles Keating. Mr. Keating's Lincoln Savings and Loan eventually failed at a cost to taxpayers of $2.3 billion.
But Mr. Gray asked to deliver his speech first, saying he wanted to provide a context for events that led to the meeting. He described the meeting as symbolic of the way Congress catered to the narrow interests of "high flier" thrifts that led the industry to its downfall.
But, he added, "this was not merely a problem of the personal ethics of five senators; there were hundreds of players."
Mr. Gray said that he and other regulators sounded warnings and attempted to toughen regulations for several years, only to be thwarted each time by "the powerful, politically generous thrift lobby."
The Ethics Committee, which allowed Mr. Gray's written statement to become part of the record of the proceedings, at first attempted to keep him from reading it for the public. The committee vice chairman, Sen. Warren B. Rudman, R-N.H., cited the shortage of time and said the statement had little bearing on the evidence. But Mr. Gray pressed for a reading anyway, and Mr. Rudman reluctantly agreed.
Although the speech brought no new evidence to the case, it was an embarrassing public relations stroke against the five senators -- Alan B. Cranston, D-Calif., Dennis DeConcini, D-Ariz., Donald W. Riegle Jr., D-Mich., John Glenn, D-Ohio, and John McCain, R-Ariz. They had taken pains during the first five days of the committee's hearing to point out that their meeting with Mr. Gray did not help lead to the savings and loan crisis.
They said they were only engaging in "constituent service" for Mr. Keating because his company had so many employees and investments in their states.
But Mr. Gray chided them, saying that senators "should know when narrow constituent demands must take a back seat to the concerns of citizens as a whole."
The savings and loan industry, he said, began heading down its road to ruin in 1982 when Congress attempted to give it new life by loosening restraints on the sort of investments thrifts could make instead of limiting those investments to mostly home loans. That was when people such as Mr. Keating jumped in, Mr. Gray said, exploiting liberal regulations to gamble on risky investments with the federally insured holdings of depositors.