Heather Cox Richardson:

From CAFE and the Vox Media Podcast Network, this is Now and Then. I’m Heather Cox Richardson.

Joanne Freeman:

And I’m Joanne Freeman. This week we’re going to talk about a topic that, as you’ll hear in the episode, on the one hand has a long history within American history, and not just in America, but has been particularly in the news lately because of Sam Bankman-Fried. He is the 30-year-old CEO who was at the heart of the big cryptocurrency trading platform, FTX, that had a big explosion, and he’s been in the news all over the place. I didn’t actually realize he was 30 years old until just in the last day or two I saw a photograph of him and thought, whoa, that’s an interesting phenomenon that someone that young inspired that kind of confidence, which is one of the things we’re going to talk about today. He has been in one way or another, sometimes very publicly, sometimes not very publicly, using his money to gain people’s confidence, to gain their money, and then to invest it in ways that now are actually imploding.

And one of the things we want to talk about this week is this phenomenon, is people stepping forward in one or another way, inspiring people’s confidence, gaining more often than not, their money. And today we will be talking largely about what are essentially conmen. We’re talking about people who are conning people regarding money, and not necessarily the many other ways in which you can people including, I don’t know, religion, real estate, whatever else. But in one way or another, these people step forward. They inspire confidence, they inspire people to give them money, and sometimes they get away with it, sometimes they don’t.

Heather Cox Richardson:

Well, and Sam Bankman-Fried inspired people quite a bit because his company had a valuation of $32 billion, then used that money in something he called effective altruism. He made a big point of donating a lot of money to Democrats, although it turned out after the crash happened that he was also giving an equal amount of money to the Republicans as well. And when in fact FTX crashed and ended up having to file for bankruptcy in the middle of November, on November 11th, the person who was in charge of liquidating the company, a man named John J. Ray III said of FTX, and this is just an astonishing quotation, “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems of integrity and faulty regulatory oversight abroad to the concentration of control in the hands of a very small group of inexperienced, unsophisticated, and potentially compromised individuals, this situation is unprecedented.”

Joanne Freeman:

And yeah, that’s explosive as a-

Heather Cox Richardson:

It’s not really, at least in its overall intellectual and social underpinnings, unprecedented at all. It goes way back to the very beginning of America. And of course, it’s worth mentioning that Bankman-Fried is not the only person lately who has found himself in trouble. The minute you talk about conmen in the modern era, people always talk about Martin Shkreli, who was the founder of Turing Pharmaceuticals, who got manufacturing licenses for drugs and raised at least one of their prices by more than 5000%, the sort of numbers that I use as exaggerations when I’m emphasizing that I can’t possibly think of a big enough number, I would say something like that. But he did it. And then of course, at the same time, these days, we’re hearing a lot of talk about Elon Musk, who is, at least on paper – I’m always skeptical of these kind of identifiers – but the world’s richest person who appears to be running Twitter into the ground, and nobody can quite figure out what he’s doing because, I don’t know, $44 billion seems to be a lot of money to put into a pile and set on fire.

Joanne Freeman:

We talked very briefly about Elon Musk in the episode that we did on heroes, and we essentially questioned whether he was indeed a hero. And we heard from a lot of people who were outraged that we would question whether he was a hero. So people were and are very much bought in to the figure he presents and the persona that he offers the public.

Heather Cox Richardson:

And one of the reasons that I care so much about the way that conmen have fit into our history is that they are not themselves, in a sense, unique, although they all have their unique characteristics, but they really do represent certain moments in American history and certain moments in which old traditions are breaking down. And people finally wake up to the fact that they’ve been sold a bill of goods, if you will. And there are very distinctive moments that we’ve uncovered to talk about here in American history where conmen become, and the exposure of conmen, really become the flavor of the day.

Joanne Freeman:

But I’ll add another thread to that. At those moments when this kind of behavior is acceptable, welcomed, wanted, and taken advantage of, you also see with these conmen the fact that the human connection and people’s confidence in other people, their desire to have confidence in other people, really shows. So that underneath all of the money exchanging hands and all of the vast corporations we’re going to be talking about today, tossing around money or grabbing money, at their heart, in one way or another, it’s about individual men inspiring confidence in part through simple charm, and I suppose boasting through who they are and people really, in a sense, wanting to find that person and to align themselves with that person and be in their company.

Heather Cox Richardson:

Well, and often those conmen take advantage of people’s best qualities. That is, their willingness to trust people. And that starts right in the early republic.

Joanne Freeman:

It does indeed.

Heather Cox Richardson:

With Thomas Jefferson. Sorry.

Joanne Freeman:

Why did I know? I knew you were going there, Heather.

Heather Cox Richardson:

I’m totally kidding. It didn’t start with Thomas Jefferson.

Joanne Freeman:

No, I know, but you get this little Jefferson smirk on your face.

Heather Cox Richardson:

Well, it’s hard to put somebody doing something unsavory into these conversations without mentioning Jefferson.

Joanne Freeman:

Well, to you. I can’t go there. But at any rate, when we were first discussing this as a topic, we were mostly focused to begin with on the early 19th century. And in the back of my mind, I recalled that there was something at some point in my distant past that I had read that was earlier. And indeed, there’s a man named Stephen Burroughs. He’s actually born in 1765. He dies in 1840, so he’s a really late 18th, early 19th century person who-

Heather Cox Richardson:

Stamp Act to Manifest Destiny. That’s interesting.

Joanne Freeman:

Quite a span, right?

Heather Cox Richardson:

Yeah.

Joanne Freeman:

Who was ultimately, when he was doing it, perhaps not renowned, but was a renowned counterfeiter and thief, and was apparently extremely charming as many of the people were going to be talking about today were, very ingenious and brash. At one point, supposedly when he was young, he actually stole some of his father’s sermons and then set himself up as a fake minister charging $20 per sermon. And when he was confronted on that, he essentially said, “Well, I’m just as worthy of giving a sermon as anyone else, aren’t I? I have things to say. I can give sermons. What’s the problem? I gave sermons. You like them. You paid me for them. Why is this a problem?”

Heather Cox Richardson:

It takes a lot of, I don’t know what the word is, to steal your father’s sermons.

Joanne Freeman:

I know.

Heather Cox Richardson:

I guess you’re stealing tools for his trade, but it’s not like you’re stealing his screwdriver. You’re stealing his sermons, which are supposed to be the word of God, but you know what? They’re there for the taking, I guess.

Joanne Freeman:

It’s a noteworthy start. In a sense, he is a true conman and ultimately becomes a massive counterfeiter. But his belief that whatever he can get away with, he should be able to do because why shouldn’t he be able to do what he does? He can sermonize. This is what he said about his ability to act as a conman. He said, this is a quote from – and I will say here – from his memoirs. He wrote and published his memoirs. The memoir of Stephen Burroughs. You never know, right? Full of his exploits. In his memoir he says, “I consider a man’s merit to rest entirely with himself, without any regard to family, blood or connection.” So every man to himself and you prove your merit through what you can do, which is this sort of American democratic message allowing for conning and scams.

Heather Cox Richardson:

Although interestingly enough, not a focus on community and being honest with each other. It’s every man for himself. And that idea of being separate from the community and able to outsmart everybody else because you’re better than them and therefore you should be able to manipulate them in such a way that it comes back to your benefit. That, I think, is another through line.

Joanne Freeman:

Yes, I think that’s absolutely true. I also think, and I felt the need to say this as I was plunging into Burroughs’ memoir, if anyone wants to do like an exploit film, man, his memoir, he’s the guy. He’s waiting for it. One of the things he describes, again, if it’s true, in his memoir is he ends up being chased all over the place because he becomes known as a counterfeiter. And so he’s running from state to state and into Canada, out of Canada and of course writes about all this after the fact. And he writes in his memoir about strapping on a pair of snowshoes backwards so that he would baffle the people chasing him.

Heather Cox Richardson:

What year was this written?

Joanne Freeman:

Somewhere in the 1830s, 1840s I believe.

Heather Cox Richardson:

Perfect, perfect. Because I would be inclined not to believe a great deal of it because of the romanticism of literature at that time, but also because that’s exactly the period when people begin to pay attention to the conman.

Joanne Freeman:

Precisely. Which in and of itself as a word doesn’t come back until 1849, right? Actually, before that point, here’s a little known fact I learned this morning. Before that point, rather than say con or conman, people referred to conning people as diddling and Edgar Allen Poe wrote an essay called Diddling Considered as an Exact Science, published in 1843, so a little bit before the word the phrase actually comes about. But this is how Poe described what a confidence man or what a diddler is. He said, “The ingredients are minuteness, interest, perseverance, ingenuity, audacity, nonchalance, originality, impertinence and grin,” G-R-I-N. Just charm. Throw that in there too. And then you get what we now call a conman.

Heather Cox Richardson:

So conmen break into popular culture in the early republic and they break into popular culture, I think, in ways that I really want to hear you talk about. But it’s really important it seems to me that that’s the era when small towns are breaking down, when people are moving west after the American Revolution and then after 1825, after the opening of the Erie Canal, they’re moving in huge numbers into new places. Cities are starting to grow. The number of cities that have more than 10,000 people in them multiplies by eight times between 1820 and 1860. And what this means is that you don’t know the people around you. And it reminded me, Joanne, of when we were talking about the ideal dating person in games, and you talked about in this period the idea of a man you shouldn’t date or a bad guy. I can’t think of what the word I’m looking for is exactly, because I remember the one from your period, which was a mushroom man.

Joanne Freeman:

A mushroom gentleman. Yes.

Heather Cox Richardson:

You didn’t want to date a mushroom gentlemen. And these two things go together, and now you better explain what a mushroom gentleman is.

Joanne Freeman:

You’re right. Well, a mushroom gentleman is essentially a person, a man, who springs up out of nowhere. It’s assumed he comes from some dark damp place. Who the heck knows? Has no roots, right? He has no roots. That’s it. Who is this person? He’s a mushroom gentleman, which is a late 18th century term, which I just think is wonderful. But it’s very much along the lines of what we’re talking about here. And particularly, not only do you have people uprooting themselves talking about roots and going to all different places, but a lot of the people certainly coming into cities are single men and women. So not only no roots, but they’re arriving on their own. They’re making something of themselves. They don’t come with a lot of personal baggage. They might have other kinds of baggage attached to them. So it’s a moment when all of these things which represent growth, the pushing out west and the rise of cities and manufacturing, all of these things, the “modernization” of the United States results in a climate that is ripe and ready for the rise of the conman.

Heather Cox Richardson:

And people don’t have the family connections and the history to be able to judge people. That is, in a small town, literally people have known each other’s families forever. There are receipts to be collected if anybody behaves badly. The same is not true where no one knows each other, and you have to go on a different set of cues and those cues are individual to the people in front of you. And those cues might be entirely misleading.

Joanne Freeman:

And some of those cues, if you think about how people, for example, your image of how people dress in the late 18th century with the lace at their wrists and the lace, the very fancy clothing, it was the case that you could look at what someone was wearing. If they were wearing lace at their neck and at their wrists and it was white, really white, not dirty, that was a gentleman because who else could keep that kind of linen clean? So there were all kinds of cues. You could look at someone and understand in a very clear way what that person was. And again, if you’re waltzing into a town as a single person and you’re dressed right for the job and your manner is correct and you’re behaving in a way that seems as though you have all of the makings and the markings of someone who is upstanding, why would people not trust in you?

Heather Cox Richardson:

Well again, but you could just be lying. You could be presenting a false front. So in 1828 there is a book written called Lectures to Young Men on the Formation of Character that warns against this very sort of person. 1828. “Instead of acting in open daylight,” Joel Hawes the author said, “pursuing the direct and straightforward path of rectitude and duty, you see men extensively putting on false appearances, working in the dark and carrying their plans by strategum and deceit. Nothing open, nothing direct and honest. One thing is said and another meant. When you look for a man in one place, you find him in another. With flattering lips and a double heart do they speak. Their language and conduct do not proceed from fixed principle and open-hearted sincerity, but from a spirit of duplicity and management.” Well, in a small town in New Hampshire that would not fly because there would be generations in that family who would come down on George there and tell him he had to behave, but he can get away with it in the city.

Joanne Freeman:

Or they would not know who George was and that would be a warning sign. Who is this George? So there were all kinds of ways in which community was policing behavior, and with the erosion of these traditional communities, that kind of personal policing falls away. In 1849 actually you get the arrest of what is the original conman, a person by the name of Samuel Thompson who also goes by Thomas Williams. And I love this story because at its heart it’s what we were talking about before: the true desire to believe well about someone. And you get suckered in because of this, in a sense, virtuous desire to believe in someone. Thompson or Williams, whichever you prefer, was very well-dressed man and he would trick wealthy people into giving him their watches. It’s Thompson who initiates the confidence man label because he’s getting literally the confidence of his targets.

And here’s a description from the New York Herald about what he would do. “For the last few months, a man has been traveling about the city known as the confidence man. That is, he would go up to a perfect stranger in the street, and being a man of genteel appearance, would easily command an interview. Upon this interview he would say, after some little conversation, “Have you confidence in me to trust me with your watch until tomorrow?” The stranger at this novel request, supposing him to be some old acquaintance not at the moment recollected, allows him to take the watch, thus placing confidence in the honesty of the stranger who walks off laughing, and the other, supposing it to be a joke, allows him to do so.” This is a person who in one way or another is in some cases with these conmen actually literally saying, “Isn’t it a shame that people don’t have confidence in each other anymore? People should be better than that. We should have confidence in each other. And by the way, can I borrow your watch?”

Heather Cox Richardson:

And walking off with it.

Joanne Freeman:

Exactly. You can totally see how that kind of conversation might draw you in.. You’re right. These days, no one has confidence in anyone. And then this person says, “And surely you would have confidence in me.” And you’ve totally led this person in to a place where they’re not necessarily inevitably, but are likely to feel inclined to want to say, “Yeah, okay. You’re right.”

Heather Cox Richardson:

And the marks are people who would be completely trustworthy with your watch. So it never occurs to them that somebody could be so incredibly brazen as to say, “Give me your watch,” and with the assumption I’ll give it back, because he probably never said I’ll give it back. But the idea that I would not behave this way, therefore you would not behave this way, is really indicative in this period of those community ties breaking down and people really not knowing what ground they stand on when they get to areas where they don’t know each other. But in cities in this period when you have this great demographic change and people at the time recognize that, while this is an individual case, that the rise of different kinds of financing have also made this kind of conning, if you will, prevalent at much larger areas of society as well.

Joanne Freeman:

So it is, along those lines, important to note that what we’re talking about here isn’t just a question of one man going up to another on the street and finding a way to get his watch. This is happening on a much broader, more sweeping level in the realm of finance. So at roughly the same time as our watch thief is engaged in his con games, the New York Herald makes this connection explicit between what is happening with this conman on the street and the fact that on basically Wall Street you have similar behavior going on, on just the larger level, and particularly that the wealthy men who are part of the Wall Street game are also in the midst and are being tested by conmen.

The Herald writes of the Palazzos that belong to these magnates, “Those palazzos with all their costly furniture and all their splendid equipage have been the product of the same genius and their proprietors, which has made the confidence man immortal and a prisoner at the tombs at jail. His genius has been employed on a small scale in Broadway. Theirs has been employed in Wall Street. That’s all the difference. He has obtained a dozen watches. They have pocketed millions of dollars. He is a swindler. They are exemplars of honesty. He is a rogue, they are financiers.” That’s a remarkably, in its own way, modern claim, right? Indeed, these people, they are doing their own game of sorts, but there’s nothing about them that appears to be criminal, right? They’re wealthy, they appear to be above board, they’re taking advantage of other people. What is the stock market, in a sense, but a big game of confidence? You invest in a company because you have confidence in guessing what the outcome, what the future of that company is going to be. It’s a remarkable and smart comparison.

Heather Cox Richardson:

And by 1859, the National Police Gazette, which was a really popular magazine, actually published an entry on the confidence man in their Rogues Lexicon. And a few years before that, novelist Herman Melville had recognized the moment as one of conmen in general. In 1857, he produced a novel that is actually called The Confidence Man, His Masquerade. So Melville’s book actually takes place entirely on April Fool’s Day on the Mississippi River Steamboat Fidel.

Joanne Freeman:

He actually publishes it on April Fool’s Day, which, boy, talk about double meanings.

Heather Cox Richardson:

Yeah, exactly. Who’s the real mark here? And in the book, what he does with the confidence man is to make that man take on a number of different identities that reflect the confusion of the 1850s. The conman is at different times a black beggar, a mourner, a man in a gray suit, an herb doctor, a cosmopolitan, all in different ways in which he is trying to get money and loyalty from his fellow travelers. So by the time of the middle of the 19th century, the entire sense of, if you will, community and who you can trust has broken down. Melville’s conman at one point says to a young traveler, “For comparatively inexperienced as you are, are my dear young friend, did you never observe how very little confidence there is? I mean between man and man, more particularly between stranger and stranger. In a sad world, it is the saddest fact. Confidence. I have sometimes almost thought that confidence is fled, that confidence is the new astrea, emigrated, vanished and gone.” And he is literally here channeling the earlier conman in exactly the way that he was conning people out of their watches.

Joanne Freeman:

Pulling a connection, drawing up a human connection between them and one way or another getting what he wants by saying, “Confidence. We should be able to have confidence in each other. What a sad, sad sign of the times.”

Heather Cox Richardson:

Yes. So in a way, taking this moment that is changing so rapidly and where the ground is shifting under people’s feet and saying, “I can take you back to a nicer, calmer time of community if only you trust me.” So there’s a con of time as well as of money.

Joanne Freeman:

Absolutely. And the money component is key here because there is that ah, yes, the good old days of confidence. On the other hand, Melville, in The Confidence Man, very bluntly acknowledges that business is a matter of confidence. He says, “Confidence is the indispensable basis of all sorts of business transactions. Without it, commerce between man and man as between country and country would, like a watch, run down and stop. Business is a matter of confidence.”

Heather Cox Richardson:

But oo, boy, is that going to get people in trouble in the 1920s when in fact that idea of confidence and confidence men is going to push America into the Great Depression after the great crash.

Joanne Freeman:

Now for a time, and of course this is looking forward in time as opposed to looking backward in time. Looking forward in time from October 16th, 1929, 13 days before Black Tuesday, economist Irving Fisher wrote an op-ed just showing how wonderful this financial boom was and wasn’t it glorious and maybe it was permanent. He said, “Stock markets have reached what looks like a permanently high plateau.” This just makes you just sad almost, several days before everything comes crashing down. And that confidence again in the permanently high plateau of the stock market really reflected the bullishness of a lot of people at that moment in time who were praising the market, praising it as something ever rising, reflecting the glories of the future.

Heather Cox Richardson:

Well, and Fisher becomes really famous because he goes on, this is days before the great crash, to say within a few months he expected to see the stock market, and I quote, “A good deal higher than it is today.” And when other economists said, maybe we ought to be regulating something here, he insisted that they were un-American and that you had to invest in America and everything was just ducky. On the 24th, the stock exchange briefly rebounds, and then it looks like it’s really going to crash on October 29th. When October 29th comes, it doesn’t go down quite as fast as people expect it to because of the actions of a man named Richard Whitney. Now, Richard Whitney was the vice president of the stock exchange and a number of very wealthy bankers had empowered him to act in their behalf. So he goes down onto the floor of the exchange and he very publicly, openly, ostentatiously makes a bid to purchase 25,000 shares of US Steel at $205 each, which is way above the current market prices. And then he went on to put bids on other similar blue chip stocks.

As he does this, it starts to reinforce the idea that things can’t possibly be that bad if the vice president of the stock exchange is putting money on these things and the bankers are behind him and it slows down the slide that day. And the Dow Jones Industrial average, which is the key way at the time that they measure the health of the stock exchange, starts to buoy up a little bit. But what I love about Whitney is he looks like such a hero at this point. They literally call him the White Knight of Wall Street. He’s doing it first of all by calming people and by convincing them that things are okay using other people’s money. But because he is so public, what happens is that when Congress decides that it’s going to look into what actually happened on the stock market, because remember in this period there’s no regulation. People can do whatever they want and they’re going to look into it. They actually have Whitney come in and testify.

And he comes in and he says, the way that we should fix the economy is to cut the salaries of government workers and to cut benefits for veterans because there’s way too much money going out to these sorts of people. And when one of the Senators who’s really angry about this says, “Well, what about your salary? You’re making bank.” Because at the time, Richard Whitney was making $60,000 a year, which was six times what a senator made. It’s a huge sum of money. And he’s very taken aback and he goes, “Well, I make very little money.” Very little is a quotation by the way. “I make very little money.” And he couldn’t possibly have his salary cut because he didn’t make anywhere near what he ought to have compared to how much he did. So then Whitney, it turns out as the crash goes on, it turns out that Whitney… I didn’t even have to finish this to know exactly what’s going on here. Whitney is himself stealing other people’s money.

Joanne Freeman:

Of course.

Heather Cox Richardson:

Investing it and losing it. So he ends up not only stealing from his friends, who of course he’s the vice president and then the leader of the stock exchange. Of course, he would never do anything untoward. He ended up stealing about $800,000 worth of bonds from his father-in-law’s estate. He ended up taking money from bankers. He ended up taking money from his brother. He took money from all sorts of people to fund his investments and his lifestyle. He ended up retiring as the president of the stock exchange, retires in 1935. By 1938, the comptroller of the stock exchange starts to report that there’s a real problem in the numbers, and that Whitney was an embezzler and his company was in fact insolvent. And within days, both Whitney and his company have to declare bankruptcy. And finally, he gets charged with embezzlement by Thomas Dewey. Thomas Dewey, who’s going to become the Republican candidate for President for on the promise he would clean up all the crap that was going on on Wall Street.

And Whitney eventually ends up in Sing Sing Prison. He is indicted by grand jury and then he pleads guilty. He ends up going to Sing Sing for a term of five to 10 years. And when he goes to prison, 6,000 people turn up to watch the former president of the New York Stock Exchange shuffle by in handcuffs.

Joanne Freeman:

What’s interesting about that is precisely that the White Knight of Wall Street to the guy shuffling by heading off into jail is dramatic. What strikes me about it though is that all of it, the performance on the floor to affect the slide of the market, the fact that he’s embezzling money in one way or another, it’s all a big con. And it dramatically shows just what you and I have been talking about in this episode, which is the link between business and confidence and crime and confidence, and the fact that sometimes the dividing line between those things can be very thin or perhaps nonexistent. And the fact that people wanted to go and watch the final scene in this drama of the person who conned so many people, they want to see him being punished for having conned people, it’s a morality tale of sorts. But it’s also in a way understandable to see why these people, even after having committed this kind of crime, become pop heroes.

So like Stephen Burroughs is a kind of pop hero for what he did because he’s charming and he got all of this money, he counterfeited money and made his way, that there is some part of all of us that we wouldn’t do that, we understand that that’s bad, and on some level you vaguely admire the person that has the chutzpah to put himself forward and do that.

Heather Cox Richardson:

Well, the thing about Whitney I think along those lines is that people wanted a white knight. They wanted somebody who could come in and do this, and so they were willing to believe. And what you just said about people then admiring that individual when it turns out they were lying the whole time. I talk a lot about Hannah Arendt, but that’s something that she pulls up when she talks about the rise of dictators. She’s actually talking about totalitarians, but I think the larger point is a good one, that if you are feeling like the system is crazy and you don’t understand where the ground is under your feet, you like the guys who’ve gained it. You like the idea that somebody can just reveal the whole thing for being the sham that it is.

So there’s both on the one side, people being like, “Yeah,.yeah, I’ll lend you my watch.” And other people being like, “Yeah, he’s great. He’s stealing her watch.” There’s a really complicated psychological relationship to being conned – and you know me, I always go back to politics – that I think actually has a lot to do with the way Americans anyway approach that kind of a character in politics.

Joanne Freeman:

Oh, absolutely. And again, you admire that person for playing the game, succeeding at the game and pointing out that it’s a game all at the same time. Think of all of the ways in which a politician you can posture as the person who is going to do X, Y, and Z and reveal all of the scams and clean everything up. And sometimes that very person, as we’ve been talking about again and again today, is the person committing some of those scams. But if he steps forward as, “Look at me, I can do what you can’t do. I can step forward and get away with it. And in doing so, I’m proving you right. You’re right. The system is rigged and watch me take advantage of it.” It’s complicated.

Heather Cox Richardson:

So one of the things that the crisis on Wall Street in the 1930s proves beyond a shadow of a doubt is that somebody has to be overseeing the people who are handling money. We have to have some form of regulation and regulators to make sure that you don’t get the kind of manipulations that were happening on the stock market when there were no rules. And what’s interesting about that is that impulse really comes not really from ordinary people who aren’t invested in the stock market and are not really paying attention, but actually other investors and entrepreneurs who are like, “Come on, we got to have some rules here or we can never break into the system.” So coming out of the 1930s, we get the establishment of regulatory mechanisms that make sure somebody is overseeing the henhouse other than the foxes. And that’s the end of the episode because everything went really well from then on.

Joanne Freeman:

Ducky, Heather. You have to say ducky, which is a very Heather word.

Heather Cox Richardson:

Did I not put ducky in with the henhouse? What was I thinking?

Joanne Freeman:

I know. This brings us to the 1980s. In the early 1980s, you have Republican congressmen leading a charge to reduce federal oversight on savings and loans, banks, and on some of the federal regulation that had come up because of what had happened earlier in the period around the great crash. So you get the Depository Institutions Deregulation and Monetary Control Act of 1980 and the Garn-St. Germain Depository Institutions Act of 1982. And in this climate where things are being deregulated, you get Charles Keating. Keating was an Arizona-based hotel magnate and home builder, and he’d been a big conservative political force for many decades. He financed anti-pornography initiatives. He was almost President Reagan’s Ambassador to The Bahamas, so he’s playing on high ground here. And in 1984 he bought Lincoln’s Savings and Loan, an Irvine, California bank, had 26 branches. He bought it for $51 million, which was double its net worth, and took advantage of this new less regulatory climate to invest his clients’ funds into real estate ventures and stocks and junk bonds and any number of other high yield opportunities.

And he lived a life that went along with what he was promoting. And as we’re seeing again and again today, this fascinates me too. You have to act the part, you have to look the part. So Keating, as he’s overseeing Lincoln Savings, he is building a $300 million resort near Phoenix called The Phoenician, which contains nine massive swimming pools, nine Steinway pianos, which apparently is a record order for Steinway Pianos, a 24-karat gold domed lobby ceiling, 604 guest rooms, and 132 Casita Villas, right? Talking about setting the stage. In 1987, Lincoln Savings came under audit because of its risky investments in things like junk bonds, which are all being financed by the people depositing in the bank.

Heather Cox Richardson:

Depositing, by the way, in a savings and loan bank, which used to be really tightly regulated so that it couldn’t do this sort of thing. So the people are like, “Wow, all of a sudden I’m getting really good returns,” without necessarily recognizing the extraordinary risk that their money was in.

Joanne Freeman:

Masked by the word savings. In the middle of all this, five particularly powerful senators, you have former astronaut John Glenn, the war hero John McCain, the very idealistic 1984 presidential contender, Alan Cranston, Panama Canal Treaty negotiator Dennis DeConcini, and Senate Banking Committee Chairman co-architect, Don Regal. All of these men, very influential senators, came to Keating’s aid and hosted meetings with top savings and loan regulator Ed Gray to encourage an end to this audit of Lincoln Savings and to just end the whole matter of investigating whatever it was doing. So one of the litigators in this whole episode says, and this really sums it up quite well, “The Senate is a really small club, like the cliche goes, and you really did have one 20th of the Senate in one room, called by one guy, who was the biggest crook in the savings and loan debacle.”

And here we get back to the con of charm. Keating had in one way or another helped each of the senators extensively. He was personally close to McCain who represented Keating’s home state, and McCain had flown several times to Keating’s opulent vacation home in The Bahamas. What a surprise that he has that. His wife and father had also invested in a Keating mall project. Keating donated a $100,000 to Cranston’s voter registration organization in March of 1987. Keating also raised $78,000 for Regal at a March fundraiser. In April of 1989, the government seized Lincoln Savings and its parent company and it declared bankruptcy. 23,000 customers, mostly elderly, investing in savings were left holding $250 million in worthless bonds and taxpayers ultimately ended up paying $3.4 billion – there’s that B again – to bail out Keating’s business.

Heather Cox Richardson:

So Congress starts to investigate Keating’s connections to the five senators. It doesn’t look good, right? And in November of 1989, Ed Gray, the savings and loan regulator, testified before the House Banking Committee and he said that Keating had gotten away with this in part because he had manipulated the senators into believing that there was a government vendetta against his business. Again, here you see the real manipulation by suggesting that he is the victim of this. Gray said:

Ed Gray (archival):

In my opinion, Lincoln devised a scheme intended to cause people to believe falsely that its troubles were the result of a vendetta against Lincoln by its regulators, principally myself at the time. The scheme, in my opinion, devised by Lincoln and its many lawyers and PR practitioners also was intended to supply the appropriate message to the biggest political recipients of Charles Keating’s contributory largess, Senators Cranston, DeConcini, Glenn and McCain had evidently, I think, somehow been affected by the scheme when they met with me on April 2nd, 1987.

Heather Cox Richardson:

So the Senate Ethics Committee in November of 1990 has 23 days of public hearings and they bring in Robert Bennett, who is eventually going to be the man who represents President Bill Clinton during the Monica Lewinsky scandal, as a special counsel. Each of the senators defended their conduct and McCain argued that his inquiries to gray were only appropriate for a constituent with such power in his state. He said:

John McCain (archival):

The only thing I said I could do was to inquire whether American Continental Corporation and Lincoln Savings were being treated fairly. I did this, Mr. Chairman and members of the Committee, not because of a friendship or lack of friendship with Charles Keating. I did it because, as I stated in the second meeting, our job as elected officials is to help constituents in a proper fashion. American Continental is a big employer and important to the local economy. I would not want any special favors for them.

Heather Cox Richardson:

In fact, in January of 1993, a federal jury convicted Keating of 73 counts of wire and bankruptcy fraud, and he served 50 months of a 12-and-a-half-year prison sentence before his conviction was overturned on a technicality. And later on, when he wrote his memoir Worth the Fighting For in 2002, John McCain reflected on his attraction to Keating. And I would love for you to read this, Joanne, because once again, it feels like he’s about to ask for somebody’s watch on Broadway.

Joanne Freeman:

Absolutely. This is the thing I guess that fascinates me most about this entire enterprise, but let me read McCain’s quote. “Keating was quite obviously an important supporter of my ambitions, but more, I genuinely liked him and enjoyed being around him, especially on those occasions when Cindy and I and our oldest child, Megan, were invited to his family’s vacation home in The Bahamas. I was never concerned at the time I spent enjoying Charlie’s company would raise public doubts about my judgment. He was a successful, prominent Arizona businessman, widely admired in the state, and I didn’t believe his support and friendship were based in anything other than political and personal affinity. He was also a self-starter, a man of great confidence and daring who saw life as a huge adventure. People like that appeal to me.” There it is. McCain puts it so plainly. “I liked the guy and I thought I was just interacting with a guy I liked and he was a man of such confidence and he was doing things that were so adventurous. It appealed to me. It never occurred to me that something was going on here that shouldn’t be going on.”

In a way that statement by McCain is like a true heartfelt testimony to what it feels like to have been conned and to realize you’ve been conned. I just liked him. I liked being with him. I didn’t think he was doing anything wrong. I mean, he’s a great guy. I would’ve given him my watch. I mean, it’s remarkable, again, the personal interaction in all of this, financial systems and the growth of cities and the changing of the frontier in the United States and all of these big systems in operation. And what we keep coming back to again and again and again is the personal relationship between someone and a confidence man, or sometimes woman, who is able to use that vast system in some way or another to get something that they want. Within all of those vast systems, there are people who want desperately to find this person who they can trust, who they can give their money to, who will take care of them, who will give them some footing on what feels as though it’s a very frightening, uncharted, ever-shifting terrain.

Heather Cox Richardson:

And I will add, in America anyway, there is a pattern of the loss of those community ties because of demographic change or geographic change or new technologies that permit, for example, the extraordinary reinvestment of monies, the different ways in which there is constant change going on. And there seems to be a wave where we get these new technologies or the new demographics or any of the things that we’ve identified and people recognize that they’re being taken for a ride. There’s this moment when it’s like, “Wow, look at Charles Keating,” or “Wow, look at Richard Whitney. Isn’t this great?”

And then the whole thing comes crashing down and we respond by using the federal government to impose the kinds of limits that in the past a small town would have. That is, you’re going to have to file your paperwork, you’re going to have to make sure that this is actually legitimate. That helps to level the playing field between the conman and the mark. And then once we get that sense back again, we tear up all those regulations and we tear up that even playing field and we get right back to where we started before.

Joanne Freeman:

And the final sort of brick in this wall that we’re building of this American tradition, of course, is the fact that for so many people for so long, and even today, the United States has always been this place where there’s always land available. Like there’s always opportunity. Or you can move through social circles and raise yourself in a way that might not be possible in the old world. That there’s a sort of sense in the United States that you can really climb and make something of yourself and that that’s the admirable thing to do. And it’s the appeal of that, and in a sense, the faith in that that so often has been part of what people assume America is that feeds right into this and helps do what you just mentioned, Heather. It causes the cycle to repeat and repeat again and again and again.

People want the rise and they see the United States as a place where that rise is possible, and at some point or another, if you’re grabbing at something that is running too fast, too high and is not regulated, you’re going to fall. But that fall is always seen as episodic, one instance, and there’s always going to be marks to try and climb that height again.