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Senator's Image as Reformer Born in Crisis
Career Eventually Thrived in Aftermath

By Michael Leahy
Washington Post Staff Writer
Thursday, October 23, 2008

Facing the biggest crisis of his political career in late 1989, John McCain telephoned Jay Smith, an old friend and strategist, and asked him to come to a damage-control session in McCain's Washington office.

McCain was under investigation for his connection to a pushy savings-and-loan operator named Charles H. Keating Jr., and Smith worried that the senator had created an appearance of impropriety because of his uncharacteristically guarded response to the accusations and his stubborn refusal to talk to reporters about them. The solution, he told McCain and his aides, was to hold a news conference. Take every question, Smith said. Say nothing is off limits. Let McCain be McCain.

Others in the room remember press secretary Victoria Clarke arguing against Smith's recommendation. "I don't think he can pull it off," she said of McCain, and then, with the senator just a few feet away, she raised a disastrous possibility: "I think he will lose his temper."

"I don't think that's true, " Smith said, turning in his chair toward McCain. "What do you think?"

"I can do it," McCain said.

Smith wasn't surprised -- he knew he had been appealing to McCain's instinct to get on the offensive. As much as he loathed the media now for what he regarded as their unfairness, McCain liked the idea of walking into the lions' den and taking on the enemy.

Some of his advisers thought his vacillation over what to do about the Keating controversy reflected an internal conflict of their boss -- between his philosophical preference for public openness and his private fury anytime he felt his dignity trampled, an anger that sometimes revealed itself in his walling himself off from anyone who crossed him. But as the Keating crisis played out, they concluded that to frame the shifting tides of his nature this way was to miss the real point about McCain: that, at his best and worst, he was driven mostly by defiance in the face of pressure.

"If people tell him he can't do something, John's instinct often is to do it and prove them wrong," Smith says.

If anything at all was slowly changing in McCain, it was the new priority he assigned to pragmatism, accommodation and self-preservation, a trio of concepts that his once-rebellious father had tried to instill in him during McCain's Naval Academy days, and that the son had scorned. Under the stress of his political nightmare now, he exhibited the first signs of a self-reevaluation.

The means and manner of McCain's political resuscitation during the weeks that followed provided a window to his emerging style amid controversy -- his zest for the big gamble, the aggressive push-back while his similarly beleaguered Keating Five colleagues took refuge behind closed doors, his deftness in recasting himself as a chastened reformer and his skill in turning a potentially disastrous setback to his advantage.

Oddly, the crisis some thought would destroy him proved to be fortuitous. While the Keating episode was the most searing moment of his career, his response to it launched him into the national spotlight. Ever since, he has been on the long, if bumpy, ascension that led him to the Republican presidential nomination.

Later those same instincts helped make his recovery possible in the wake of his crushing loss to George W. Bush for the 2000 presidential nomination. In both crises, he proved himself to be a resilient and resourceful fighter, a dangerous politician to underestimate.

Mistakes of 'Appearance'

No other blow in McCain's life had stung him as much as the Keating bludgeoning. "At least the North Vietnamese didn't question my integrity," he famously snapped at two Arizona reporters when asked how the fallout from the scandal compared with the torment he suffered as a prisoner of war in Hanoi.

When it came to Keating, McCain had a unique public relations mess that had little to do with the $112,000 in contributions he had received from the magnate during his first three campaigns. "Of the five senators before you, then-Representative McCain had the closest personal friendship with Charles Keating," Robert Bennett, chief counsel of the Senate ethics committee, informed panel members. Bennett, who would later represent the presidential nominee in his battles with the New York Times, added that McCain had been given gifts from Keating that the other senators hadn't: "Senator McCain was also the only one to receive personal as well as political benefits from Charles Keating."

During his early years as a congressman in the 1980s, McCain had vacationed, along with his wife, Cindy, young daughter Meghan and a babysitter, on Keating's estate at Cat Cay in the Bahamas. On several occasions, Keating flew the family down to the vacation site aboard the aircraft of his corporation, American Continental, after which McCain seemingly violated congressional rules in not promptly reimbursing the corporation.

In 1989, McCain finally paid about $13,000 to American Continental to cover the expense of his family's previously unreimbursed airfare to the island, later saying that the delay resulted merely from an oversight. But, politically speaking, the timing could hardly have been worse. By then, federal regulators had seized the savings and loan under Keating's control and news had broken of a Justice Department investigation of the S&L.

Aware of the fallout that might come from the news that he had run afoul of congressional rules in not swiftly paying his friend's company, McCain turned to his wife, who generally handled the family's household bills, in hopes that she might find canceled checks proving that the McCains had reimbursed American Continental for some, if not all, of the flights at issue.

Complicating McCain's public relations problems, stories surfaced that Cindy and her father, Jim Hensley, the owner of a successful Anheuser-Busch beer distributorship in Phoenix, had invested in a real estate deal with Keating. While McCain had played no role in their investment in an Arizona shopping center built by a subsidiary of American Continental, the deal triggered questions among reporters and Senate investigators about his motives and possible conflicts of interest.

It was a dark period. "John was deeply down," Maine senator and future defense secretary William S. Cohen remembers. "He was upset a lot of the time with himself. . . . He'd made a mistake, obviously -- mistakes of 'appearance,' as he said, in going to the meetings [with federal regulators]. . . . But something like riding on a plane with Keating: He'd never given that a second thought -- his father-in-law knew Keating, after all. He had this sense of outrage over what some people were saying about him. . . . He felt more wounded by that whole experience than anything else that had ever happened in his life. He said to me one day, 'They've inflicted more pain on me than the North Vietnamese did' -- that was the essence of it. . . . [Virginia Sen. John W.] Warner and I tried pumping him up and saying, 'You'll get through this okay; it'll be okay.' But it was hard."

During the last half of 1989, McCain turned for advice to former Arizona senator Barry Goldwater, his predecessor, with whom his relationship had experienced ups and downs. McCain sent Goldwater a private note, asking whether the legend could recommend a way to handle the Keating controversy.

Goldwater, who had been reluctant to issue a public defense of McCain, was characteristically blunt, offering a bit of encouragement but little else. "I've been wracking my brain to come up with some advice to give you, but frankly, I can't find any," he wrote in a letter to McCain, a copy of which is in the Goldwater Papers collection at the Arizona Historical Foundation. "My suggestion is, sort of lay off it, you've explained it to everyone who would listen, and now I think your job is to get a hell of a lot of work done for Arizona that will stand out more predominantly, than what has happened to you with Mr. Keating. That's about it, John. Work your ass off. . . . I think you can do it."

By then, Keating's Lincoln Savings and Loan had collapsed under crushing debt, to be taken over by the federal government, which covered Lincoln's losses at a cost of about $3 billion to American taxpayers. More than 20,000 bondholders had lost more than $200 million in savings. The outspoken critics of Keating's five senatorial friends had grown to include some of the regulators from the Federal Home Loan Bank Board whose initial concerns about Keating had gone unheeded.

Before the ethics committee hearings even began in late 1989, the regulators leveled accusations of improper conduct against the five senators, who had accepted a total of more than $1.3 million in campaign money from Keating. At the start of the hearings, the senators sat dourly alongside one another in a long row, a visual suggestive of co-defendants in a rogues' docket.

That image and the words "taxpayers' billions" had a damning effect: Although some of the targeted senators had yet to see it, three of them -- Democrats Dennis DeConcini of Arizona, Alan Cranston of California and Donald W. Riegle Jr. of Michigan -- were already effectively finished in electoral politics, never again to run for public office. The committee determined in 1991 that the three had improperly interfered with the bank board's investigation of Lincoln, with Cranston receiving a sharply worded reprimand. The committee exonerated the fourth Democratic senator involved, Ohio's John Glenn, a revered former astronaut who had taken $200,000 in contributions from Keating. But while Glenn would win reelection once more, his career was never quite the same, the committee concluding that he had exercised "poor judgment" in meeting with regulators at Keating's behest.

It was the same decision that the panel reached about McCain. But, though the committee treated McCain and Glenn identically, their political fates could scarcely have been more different. Among the five senators, only McCain's career genuinely recovered -- and eventually thrived -- in the wake of the crisis.

'I Freely Admit My Errors'

Two days after the strategy meeting in his Washington office, McCain appeared at the Phoenix Sheraton Hotel before a thicket of cameras and Arizona reporters. Victoria Clarke planted herself a few feet away, and McCain told her to rub her nose if he sounded like he was on the verge of losing his temper.

McCain read from a prepared text that Jay Smith had helped to draft. "I will stand here and take your questions for as long as you have them," he told the media. "Anything you want to ask me."

A disarming speech followed, which included a swift admission: "I am not going to stand here and tell you -- or have the attitude -- that everything I have done is above reproach and without fault. Was I sufficiently sensitive to the appearance some of my actions were creating? Maybe not.

"I freely admit my errors. . . . I committed an error by not reimbursing American Continental for my travel on their corporate aircraft at the time of the travel, which members of Congress are required to do. This was wrong. I can honestly tell you that I did not do this intentionally. I had assumed all along that payment for the trips had been made. . . . John McCain may have made some poor judgments. But I have never used my office to aid any individual improperly."

McCain explained what had given him confidence in Keating's operations, citing written assurances from some of the financial world's sacred cows, including Alan Greenspan -- who in the years before becoming the Federal Reserve Board chairman, had served as a consultant to Keating -- and what was then known as Arthur Young & Co., one of the Big Eight accounting firms. And while the speech skirted over an issue of earlier letters McCain wrote to the Reagan White House in support of Keating's efforts to reduce federal restrictions impeding his investment plans, his implicit message was clear: Even the sharpies had been fooled by Keating -- there was plenty of fault to go around.

He quoted a Greenspan testimonial about Lincoln Savings and Loan's operations during the Fed chairman's days as a Keating adviser: " 'I believe that Lincoln . . . has demonstrated that it has the adequate capitalization, sound business plans, managerial expertise and the proper diversification to which the Board refers.' "

After the speech, McCain calmly answered questions until there were no more.

It was, even in the judgment of critics, a bravura performance. The Arizona Republic newspaper, which had earlier viewed McCain's Keating-related comments as defensive and unseemly, signaled its approval: "He freely owned up to error and carelessness, refused to blame his staff, and left the news conference with his reputation intact." The Republic's sister paper, the Phoenix Gazette, noted that he had checked his fury at the door.

The McCain team's public relations onslaught had just begun. Over the next six weeks, the senator became ubiquitous on TV news shows and in major publications, granting interviews to 21 media giants that included the three major networks' evening news shows, The Washington Post, the New York Times, Time magazine, PBS's "The MacNeil-Lehrer Newshour," and ABC's "Nightline" and "This Week With David Brinkley."

"It wouldn't be successful if he was seen as ducking somebody . . . so he talked to virtually everybody," Smith remembers. It worked. Commentators and even some of the Federal Home Loan Bank Board regulators praised McCain for talking openly about his mistakes. By then, the subject of his apologies had grown to include his simple presence at the Keating Five meetings. In a November 1989 interview with PBS's Roger Mudd, he declared: "The appearance of five senators meeting with one regulator is clearly . . . wrong. . . . I made mistakes, and serious ones. But I did not abuse the power of my office."

In denying having done anything unethical while repeatedly emphasizing his regret about the "appearance" of having made a mistake, McCain was gambling that voters would discern a distinction. Seeing the risk in the strategy, Mudd observed that it was a "roll of the dice." McCain, he said, "has fully thrown himself on the mercy of public opinion."

McCain acknowledged he had troubles, observing that he was caught in the "crisis of my political life."

"Think you'll survive it?" Mudd asked.

"I hope so," McCain said.

Toward the end of the PBS report, in what became a pattern during his television appearances, McCain received a favorable nod from the commentator. "John McCain has been the only one talking," Mudd told viewers. "The other four senators who are involved . . . all have been following a policy of stonewalling the press."

The flattering contrast emerged as a familiar media refrain in the days ahead, politically deadly to the four silent senators but a boost to McCain's political resurrection. When John Glenn finally began speaking publicly about the controversy, he avoided expressing any McCain-like regrets, steadfastly insisting upon his forthrightness, though sounding defensive in the process: "I never acted in a more ethical, moral and legal way in my life," he said.

By then, after weeks of interviews, McCain had changed from being a once little-known junior senator from Arizona to a national media favorite, appreciated for his admissions and unpredictable candor about the Keating mess. Even Edwin J. Gray, the chairman of the Federal Home Loan Bank Board, who had felt unduly pressured by the five senators at the first meeting about Keating, singled out the senator who kept issuing the same qualified mea culpa. "In the case of Senator McCain, he is the one who has apologized -- he said [that five senators meeting with the regulators] was wrong, basically," Gray said. "And I think he deserves a lot of credit for that."

Back in Washington, DeConcini, who would later decide against seeking election in 1994, took note of McCain's rise from the dead.

"John did some smart political things, in retrospect," DeConcini says. "He went back to Arizona, admitted to some mistakes of judgment; that was shrewd. . . . He didn't take an aggressive position like I did, and like Riegle and Cranston did in fighting. . . . Maybe I should have admitted to some mistakes in judgment in some way. . . . And perhaps I should have called Greenspan and spoken out about Greenspan's support [of Keating] like McCain did [in his press conference]. But my staff talked me out of it. . . . John benefited from doing some smart things."

Birth of Campaign Reform for McCain

In response to questions from television anchormen, the chastened McCain seized the mantle of a new cause. "I am all for campaign finance reform," he said in late 1989 on "Nightline." "I think it will come over time. I think it will take impetus."

"That was the birth of campaign reform for McCain," Jay Smith later observed.

No one close to McCain could remember him ever talking about the subject before. But with the fallout from the Keating scandal receding, and his priorities changing, the great reception he was receiving from pundits and television interviewers emboldened him. Over the next year, he linked the ills of campaign finance scandals to excessive government spending, arguing that one led to the other. He began excoriating pork-barrel spending and earmarks. It was all part of a package of reforms being pushed by a new brand of Republican crusader.

"He'd never really talked about earmarks either before Keating," Smith recalls. "His new message was, number one: The status quo is unacceptable. . . . He'd known he was going to be exonerated [by the Senate ethics committee], but he also knew that . . . there was still this appearance of impropriety out there for some people. . . . . He'd had no real reason until then to pay attention to issues like campaign finance. . . . I first heard him talk at length about reform during his 1992 reelection campaign."

For the senator once regarded as a reliable party man, the moment marked the beginning of his subtle shift away from the orthodoxy of his party's establishment, his first steps toward staking out a reformist agenda that would at once begin to distance him from Keating while inexorably creating a rift between him and powerful Republicans who resented the casting of the issue as a moral litmus test. Sens. Mitch McConnell and Trent Lott maneuvered to derail a series of McCain attempts to change campaign financing rules, and for the first time, some Republicans and conservative pundits openly talked of the irritant that McCain was becoming.

But an ever more defiant McCain, having hitched his star to his reformer image, had made campaign finance a cause by then. After several failures to overcome Republican opposition, McCain and Democratic Sen. Russell Feingold of Wisconsin managed to win congressional approval of their campaign finance reform legislation in 2002. Best known as McCain-Feingold, the bill's most important provision banned unlimited and unregulated "soft money" contributions from individuals, corporations and labor unions to federal candidates and national political parties.

Its passage served to remind admirers and foes alike of McCain's outsider status. Some Republicans approved of it only grudgingly. President Bush expressed discomfort with parts of McCain-Feingold, but he signed it into law, which the Supreme Court upheld a year later.

Long before then, the specter of Keating and the scandal that threatened his career had been flipped to McCain's advantage, setting in motion a political climb that cast him as reformer, a maverick, a national figure and, eventually, a presidential contender in 2000. His campaign bus, the Straight Talk Express, would become the rolling symbol of his new identity.

"There was no doubt that campaign finance and being a maverick was a direct result of all that had happened to him," Cohen observes. "John wanted to see some changes, and people were suddenly listening to him, though not every Republican was always pleased with what they heard. John was not always a party guy, but I liked it. Many people liked it."

Costly Clashes

The Keating episode, and his crusade for campaign finance reform, set in motion a decade-long odyssey for McCain -- it saw him beset by seemingly crushing setbacks even as he steadily built for himself a winning image as a fierce and recalcitrant rebel. It propelled him as a national force even as it stiffened the opposition to him among conservatives.

That he had no definable political ideology made it easier to acquire the image of a reformer and iconoclast; he was answerable to nothing and no one in the largest sense. Unbound by a philosophy and so largely immune to charges of inconsistency, McCain's political outlook could afford to be thoroughly malleable, guided only by his instincts.

His acolytes touted him as a renegade who placed country above party and special interests -- just the right leader to reclaim the White House for Republicans, they argued. But, during the 1990s, his maverick image increasingly complicated his presidential ambitions. For every party leader who admired his independence, there was another prominent Republican voicing disdain for his go-it-alone style. Congressional Republicans who had done battle with him on campaign-finance and other issues made no secret of their opposition to him as a possible presidential candidate, and back home in Arizona, several key Republicans chafed against what they regarded as his attempts to dictate their political moves.

Even people who had stood by him since his earliest political days began abandoning him, sometimes not because of his reformist impulses but simply because his demanding nature so hurt or alienated them. He would expect fealty and they would say no. The crusader still sometimes exhibited his old prodigious temper, losing his cool behind closed doors with Republicans reluctant to do what he wanted, especially in Arizona. Their ranks included several of his longtime allies and key friends, whose estrangement he couldn't politically afford. In time, the widespread disaffection would spark the second crisis of his career, though he couldn't see the trouble brewing in the late 1990s, so busily was he preparing for his 2000 presidential run.

He had already suffered a falling out with his former top congressional aide in Arizona, Grant Woods, long viewed as his alter ego, a man who had begun to stake out his own promising future in Republican politics. Seen by many Arizonan observers as a reformer in the McCain image, Woods had risen to become Arizona's attorney general, a position from which, in the 1990s, he began investigating the state's Republican governor, Fife Symington, who would eventually be driven from office because of allegations of a financial scandal. As Woods recounts, a livid McCain asked him, "What the hell are you doing?"

"I've gotta do what I've gotta do," Woods remembers responding.

McCain made it clear that he didn't want him investigating a fellow Republican, Woods recalls. When Woods persisted, and defied McCain on a series of other issues, their relationship ended, with Woods shut out of McCain's inner circle. "It was kind of a military thing to him, a chain-of-command thing," Woods says. "I didn't follow the commands. He's a military guy, and you're supposed to salute the guy ahead of you on the command chart, and I wasn't saluting."

Perhaps the most costly clash for McCain came with Republican Jane Hull, who succeeded Symington as governor. As Woods and Smith remember, McCain never had forgiven Hull for supporting one of his Republican primary rivals during his first congressional race in 1982. "Dumb as a tree," he privately said of Hull, who, according to associates close to her, heard about McCain's insults from others and argued vociferously with him on occasions when she felt that his demands infringed on her prerogatives as governor.

McCain's grudge against Hull had long baffled Woods, who years earlier had urged his old boss to bury his contempt. "I would say to him, 'Why do you even care, John?' " Woods remembers. " 'You're talking about something that happened back in '82.' But John cared. I thought it was pretty petty and ludicrous. . . . He didn't show her the proper respect at times. I told him, 'If you don't stop doing this, you're going to have the same amount of supporters 20 years from now as you do today -- you won't add anybody.' " Woods warned McCain of the danger of alienating any prominent Arizona Republican. "It made absolutely no sense for him to keep doing it to somebody like Jane Hull. She was a strong personality herself, and she was a fellow governor of George W. Bush. And we saw what happened with that."

What happened was that, one afternoon in 1999, without warning McCain, Hull stunned the Republican political establishment by announcing her support of Bush for the 2000 presidential nomination. The moment marked the start of a new crisis. A series of other notable Arizona party operatives whom McCain had offended over the years followed Hull's lead.

Then, former congressman John Rhodes, a onetime House Republican leader whose seat McCain had captured in his first political race after Rhodes retired, issued his own endorsement of Bush, trying to soften the rejection for McCain by declaring he would support his fellow Arizonan for any office except the presidency.

Word of Arizona's disaffection toward its not-so-favorite son had spread. After he upset Bush in the New Hampshire primary, the nomination battle for McCain hinged on winning the South Carolina primary. Both the Bush and McCain forces waged fierce campaigns, with McCain irate over an anonymous smear effort alleging, among other things, that he had fathered a mixed-race child.

McCain questioned Bush's integrity and intellect. But nothing he did could stop his sliding fortunes, a trend that grew worse amid a push against him by leading Christian conservatives enamored of Bush and skeptical of McCain's commitment to their social causes. After losing South Carolina, McCain bitterly lashed out at them, referring to ministers Pat Robertson and Jerry Falwell, a co-founder of the Moral Majority, as "agents of intolerance." It was an act of political self-immolation. His campaign was finished.

The Downside of Ferocity

The Keating nightmare had infused McCain with tenacity and moral indignation. But it had taught him little, if anything, about patience and reconciliation. His old anger still competed with his new reformist politics for the attention of the public, the media and his colleagues.

The quandary had been a lifelong problem. More than 40 years earlier, his father, Jack McCain, had sought to lecture him, over lunch near the Naval Academy, on the importance of staying calm and not self-destructing when dealing with foes, especially those in superior military positions. The young rebel was fuming that afternoon again about a company commander whom he had come to regard as a mean-spirited, vindictive disgrace. His father, once a young renegade himself at the academy, but now a politically astute officer on his way to becoming a four-star admiral, warned him against taking on authority, preaching the merits of patience. McCain kept arguing the point with his father, refusing to back down. His war with Capt. R.G. Hunt, and half a century of more Hunts, would continue.

McCain's steel and ferocity had served him well at different points in his life -- in hostile schoolyards, in tough bars and in the Senate, when he was caught in the Keating fires and later in pushing campaign-finance reform. But all along, the ferocity had its downside, too, and five decades after his father's warnings, aware that he had no other choice if he ever wanted to capture the White House, the rebel at last embraced accommodation.

Although tensions between his office and the Bush White House remained, the newly accommodating McCain frequently lent the president his high-profile support and painstakingly emphasized, before conservative audiences, that he voted with him on the vast majority of issues. He gave full-throated support to the controversial Bush tax cuts, after first calling them unfair. He hugged the president at White House photo ops when Bush's poll numbers were falling and the administration was in need of all the political cover it could get.

By 2006, McCain had publicly set aside another longstanding grudge, delivering a commencement address at Liberty University and receiving a hug from another old antagonist, the university's co-founder Jerry Falwell, who died last year. His disinterest in ideology, his trust in his instincts and his comfort with the improvisational style of his own politics was proving successful in helping him make friends of former foes.

On his way to the 2008 nomination, McCain adroitly built a new coalition of Republican conservatives and moderates. As the general campaign has worn on, his nimbleness has not come without occasional costs, as some Republicans have joined Democrats in arguing that he has embraced new positions with an alarming alacrity, such as during the Wall Street bailout crisis, when his stances evolved almost daily, incorporating elements of both well-worn conservative and liberal dogmas.

But he might never have been here in the first place, so close to his dream, without having realized the benefits of all his accommodations, large and small, over the past eight years. "My father kind of gave McCain an unofficial endorsement when they finally got together," remembers Falwell's elder son, Jerry Falwell Jr. "He thought McCain would be the nominee in 2008. I think both of them discovered that they had some real personal chemistry, some real things in common. They were both mavericks, after all."

The moment represented just one more in a long line of conciliatory gestures from McCain, who was anxiously reaching out, sometimes with the help of surrogates, to soothe old enemies. Jane Hull was aboard the campaign now. And Grant Woods. And most of John Rhodes's longtime allies, too. In reaching for command, his father's way had become his own.

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