For the second time in two decades, John McCain and Alan Greenspan find themselves jointly linked to a major crisis in the American financial system. The New York Times' stinging rebuke of Greenspan Friday for his role in helping trigger the current Wall Street meltdown only served to remind Americans of John McCain's 2007 admission that his limited knowledge of the economy amounted to "I've got Greenspan's book." But as it turns out, McCain turned to Greenspan's writing once before during the 1980's, work the future Fed chairman did on behalf of none other than Charles Keating.
Back in 1984, Greenspan and his economic forecasting firm, Townsend-Greenspan & Company were retained by the law firm representing Keating's Lincoln Savings and Loan. As the archives of the New York Times detail, Greenspan was hired not only to "conduct a study on real estate investment, known in the savings industry as direct investments, by savings and loan associations."

He was also to study Lincoln's financial condition, and if he considered the institution stable, to write officials of the Federal Home Loan Bank of San Francisco supporting an application by Mr. Keating for an exemption for Lincoln to a bank board rule forbidding substantial amounts of such investments. Mr. Greenspan sent such a letter in February 1985. Lincoln did not receive the exemption.

What triggered Greenspan's hiring in late 1984 was growing concerns on the part of the Federal Home Loan Bank Board with risky direct investments by savings and loans, worries which prompted it to adopt a regulation capping such activities at 10% of an institution's business. For his part, Greenspan in his report gave a glowing assessment of Keating's Lincoln Financial, a firm whose later implosion would cost U.S. taxpayers $3.4 billion:

He submitted his study on direct investment to the bank board, but it adopted the regulation limiting such real estate investments anyway. Then Mr. Greenspan wrote the regulators, asking that Lincoln be given an exemption from the new rule.
Mr. Greenspan described Lincoln's management as ''seasoned and expert in selecting and making direct investments,'' as having a ''long and continuous track record of outstanding success in making sound and profitable direct investments,'' as succeeding ''in a relatively short period of time in reviving an association that had become badly burdened by a large portfolio of long-term fixed-rate mortgages'' and that it had ''restored the association to a vibrant and healthy state, with a strong net worth position.''

As the Times recounted in its 1989 interview with then Federal Reserve chairman Alan Greenspan, that report was not only a subject of discussion at his 1987 confirmation hearings. "Mr. Greenspan's views in the winter of 1984-85," the Time s noted, "are being used now by Lincoln's past and present supporters in the fall of 1989 in their own defense."
None more so than Arizona Senator and Keating Five figure John Sidney McCain. McCain had intervened with federal regulators on behalf of his family friend, political sugar daddy and wife Cindy's business partner Charles Keating. But before he was reprimanded a Senate Ethics panel for "poor judgment" in the affair, McCain trotted out the Greenspan report in defense of his advocacy of deregulation on Keating's behalf. As the Times reported in 1989:

A spokesman for Senator John McCain, Republican of Arizona, and one of the Senators whose intervention with Federal regulators on behalf of Lincoln two years later, in early 1987, is the subject of the Senate and Justice Department inquiries, said that ''Senator McCain has cited the Greenspan study many times as a powerful force in his approach to Lincoln.''

Alas, the shared Keating experience of Alan Greenspan and John McCain was merely a bump in the road for each. Greenspan, after all, went to onto become Fed chairman despite his admission:

''Of course I'm embarrassed by my failure to foresee what eventually transpired. I was wrong about Lincoln. I was wrong about what they would ultimately do and the problems they would ultimately create.''

McCain, too, was embarrassed about his Keating role and the S&L collapse which ensued. As he put it in 1999, "The fact is, it was the wrong thing to do, and it will be on my tombstone and deservedly so."
But as we fast forward 20 years to the Wall Street crisis now rapidly undermining Greenspan's legacy and McCain's presidential hopes, it is worth remembering that we were warned. 10 years before McCain ally and future economic advisor Phil Gramm told Greenspan at a 1999 Senate Banking Committee hearing, "You will go down as the greatest chairman in the history of the Federal Reserve Bank," Clifford L. Brody, a financial consultant in Washington, cautioned in 1989 that Greenspan's Keating culpability would limit his ability to call for new deregulatory steps for the banking industry:

''I think you will find it will hinder him from being in the forefront of the debate. Because every time banking deregulation is mentioned, he will be concerned that in the back of people's minds will be the ghost of Charles Keating.''

As the Times detailed this week in its damning analysis of Greenspan's role in lax regulation of derivative instruments which helped sink Wall Street, not so much.