In order to deal with problems faced
by savings and loan associations (also called thrifts), the banking industry
was significantly deregulated in the early 1980s. Among other things, this
allowed the savings and loan associations to invest in commercial, as well
as residential, real estate. Over the course of the 1980s, many of these
thrifts made commercial real estate loans involving substantial risk. As
the Federal Home Loan Bank Board, which regulated the thrift industry,
uncovered these problems in the early and mid 1980s, it tried to impose
stricter regulations to prevent a worsening of the position of the S&Ls.
Some of this re-regulation required the passage of new legislation by Congress.
As the Chair of the Federal Home Loan Bank Board, Edwin J. Gray, explained
it, the Board ran into two significant problems in trying to handle the
problems faced by the savings and loan industry.
On the one hand, the White House during the
Reagan Administration was pursuing a policy of deregulation, and under
this policy refused to support requests for the personnel and funds required
to carry out increased examinations of individual thrifts. On the other
hand, Congress--and especially the House and Senate Banking Committees--refused
to pass the legislation that was necessary in some cases to more strictly
regulate the S&Ls, and prevent a further deterioration of a worsening
situation.
In 1989, the Lincoln Savings and Loan Association
in California collapsed. It was estimated that a government bail-out of
Lincoln would cost over two billion dollars. Charles Keating, the Chairman
of Lincoln's parent company, was implicated by the press by Common Cause
for being personally responsible for this, the nation's largest thrift
failure.
When the House Banking Committee heard testimony
on the Lincoln collapse, Keating suggested that the problem was the fault
of the regulators whom he suggested had a vendetta against him and were
out to sabotage his business. Edwin J. Gray, the former head of the Federal
Home Loan Bank Board, on the other hand, testified that his agency's auditing
was anything but activist. Further, Gray said he had been approached by
a number of influential senators to discontinue investigations of the Lincoln
S&L. Later, it was revealed that these senators had received substantial
campaign contributions--both directly and indirectly--from Keating, totaling
over 1.3 million dollars.
A number of investigations began as to whether
these senators had acted improperly and whether Keating had been able to
buy influence through his campaign contributions. These included investigations
by the State of California, the U.S. Department of Justice, and the Senate
Ethics Committee. While the California and the Justice Department investigations
concentrated on Keating's action, the Senate Ethics Committee investigation
concentrated on the actions of the five senators implicated: Alan Cranston
(D, CA), Dennis DeConcini (D, AZ), John Glenn (D, OH), John McCain (R,
AZ), and Donald Riegle (D, MI). These men were dubbed the Keating Five.
Although the special counsel to the Ethics
Committee advised the Senate that Senators Glenn and McCain were not substantially
involved, months of testimony revealed that all five senators had acted
improperly in varying degrees. All of these senators, however, continued
to proclaim that they were not involved in any wrongdoing, and were just
following normal campaign funding practices.
In the end, the Senate Ethics Committee concluded
that Senators Cranston, DeConcini, and Riegle had substantially interfered
with the federal regulators' enforcement processes at the request of Charles
Keating. In August 1991, the Ethics Committee recommended to the full Senate
the censuring of Cranston for reprehensible conduct. The other four senators
were noted for questionable conduct. Cranston had already decided not to
seek re-election, citing medical problems.
As a result of the Keating Five scandal,
during the 101st Congress (1989-90) a number of bills on campaign finance
reform were introduced. The major bills were H.R. 5400, introduced by Representative
Swift (D, WA) in July 1990, and S. 137 introduced by Senator Boren (D,
OK) in January 1989. These bills--like those introduced in subsequent Congresses--were
only sponsored by Democratic representatives and senators.
Both bills called for spending limits and
for public financing for Senate elections. They also subjected senators
and Senate officers and employees to the same limitations on outside income
that was generally in force for government employees according to the provisions
of the Ethics in Government Act of 1978. This included a ban on honoraria.
In September 1990, the Senate bill was incorporated
into the House bill and both versions were sent to conference committee.
However, the Senate and House bills were never reconciled in Conference
and the measures died.
During the 102nd Congress (1991-92), two
major pieces of campaign reform legislation were introduced. One was S.
3, introduced by Senator Boren (D, OK); and the other was H.R. 3750, introduced
by Representative Gejdenson (D, CT). The original Senate bill would have
banned contributions from PACs (political action committees) altogether,
while the House version which prevailed limited PAC contributions to a
total of $200,000. The House proposal also placed a voluntary spending
limit on House campaigns officially amounting to $600,000, but actually
allowing a million dollars to be spent on congressional campaigns. Some
argued that such a high amount was, in fact, no limit at all. According
to these bills, limits on Senate election spending would vary from 950,000
to 5.5 million dollars, according to the population of the individual state.
The House bill was incorporated into the
Senate bill and the conference report was passed by both chambers. However,
President Bush vetoed this bill in May 1992, and the Senate failed to override
his veto.
During the 103rd Congress (1993-94), Senator
Boren (D, OK) introduced campaign finance reform measure, S. 3, while Representative
Gejdenson (D, CT) introduced a similar bill in the House, H.R. 3. Both
of these bills were very similar to the bill vetoed by President Bush in
1992. President Clinton made a major statement in support of these bills
in May 1993, along with major Democratic senatorial and congressional leaders.
The original bills would have set limits on campaign spending, restricted
the roll of PACs and lobbyists, opened the airwaves to both incumbents
and challengers, made lobbyists pay for federally funded campaigns, and
banned the use of soft money in federal elections. The spending limits
were substantially the same as those incorporated in the 1992 legislation:
1.2 million to 5.5 million for general senatorial elections and $600,000
for congressional elections, indexed for inflation. The measures as originally
introduced were supported by many reformers.
However, during the course of debate and
amendment in the Senate, the bill was substantially weakened. In the end,
the Senate version sets voluntary spending limits and subjects candidates
who spend more than these limits to a gross receipts tax on their campaign
funds. Candidates who do comply receive discounted television time and
mailing rates. The Senate bill bans PAC contributions from both House and
Senate races. In the event that this PAC provision were to be found unconstitutional,
PAC contributions would be limited to $1,000, rather than the current $5,000
limit. In addition, Senate candidates can receive no more than 20 percent
of their funds from PACs. The bill also eliminates soft money from federal
elections and bans lobbyists from contributing to, or raising money for,
any member of Congress whom they have lobbied in the past year. This revised
bill was passed by the Senate in June 1993.
The bill as passed by the House, which was
incorporated into S. 3, was substantially different. The House measure,
which only deals with the House side of the issue, was passed in November
1993 and incorporated into the Senate bill. A conference committee has
been called for to reconcile the differences between the House and Senate
versions.
It is likely that a campaign finance reform
bill will be passed by both chambers and signed by President Clinton during
1994. However, this bill will most likely be substantially weaker than
the bill which had been passed by Congress, but vetoed by President Bush
in 1992. Furthermore, many of the provisions of the bill are constitutionally
questionable and are certain to be challenged in the federal courts should
the bill become law.
Although many reform groups supported the
original versions of these bills, a number find the current provisions
ineffective; and some feel them to be even worse than the current situation.
Thus, in the end, many expect that campaign finance reform legislation
will be enacted in 1994, but that it will be essentially ineffective.
(Much of the action on the 1992 and 1993
bills are discussed in detail in connection with the Policy Flow Chart
in this program and, presented on Side 1 of the videodisc.)