In 1988, Newsom was an investigator with the California Department of Savings and Loan, a now-defunct state regulatory agency. Unconnected to the federal bureaucracy, Newsom and his state-employed colleagues did not have to weather static from D.C., or Dochow. Newsom was eventually sent to Phoenix to join federal regulators who had already spent weeks examining the books of Keating's company. They described an institution that was basically sound, with billions of dollars' worth of outstanding loans, with less than $10 million considered "troubled," or likely headed for default.
It quickly became clear to Newsom that the federal investigation was a whitewash.
Jake Poehls
Newsom on the beach near his home in Montara.
Banking regulator Darrel Dochow.
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On the evening before he was to testify in front of the House banking committee, Newsom confided to other regional regulators that he intended to be extraordinarily blunt about what he saw as systemic cover-ups by top government officials. The idea of such an approach at once emboldened and terrified his fellow low-level bureaucrats.
"During that period, every day I would go out to start my car, I would turn the key, and if the engine started up instead of exploding, I'd consider myself to have made it through another day," said John Meek II, a former bank regulator based in Chicago. "We were up against some very powerful forces at that time."
Newsom, however, describes no such trepidation. He'd gotten his start in the financial world in 1970 as a bank repo man in Boston's tough Roxbury/Dorchester section. He moved to California in 1974 to work as a state bank examiner, where he had a tough-minded mentor with a talent for tracking down crooks.
In October 1989, Newsom sat before a long wooden table in a congressional hearing room. He was fidgety, exhilarated, and terrified, like a dog being held back from chasing a bull. When called upon by Chairman Gonzalez, he thrust his face into the microphone as if it were something good to eat. In a dark blazer, red tie, mussed hair, and oversize glasses, he paused a split-second before opening his mouth to speak, and allowed himself a half smile.
"By the end of my stay in Phoenix in early November 1988, the phrases 'whitewash' and 'cover-up' were almost standing jokes in Phoenix relating to the Lincoln loan examination, among state and federal examiners," Newsom said. Within hours of cracking Keating's files, Newsom said he found "perhaps the most flagrant self-dealing regulatory violation I have ever seen. The federal Lincoln loan examination was supposedly complete at the time."
Early on, Newsom said he discovered a fishy loan to a project called the Hotel Pontchartrain. The hotel was purchased by a subsidiary of Lincoln Savings and Loan in 1985 for around $20 million, then resold to another company set up by Keating, financed by another round of $38 million in questionable loans through Keating-controlled entities.
"That took me two hours to uncover," Newsom told Gonzalez' committee. "I couldn't believe all those examiners had been there that long, and they didn't see this thing that was just lying there."
In the end, federal investigators determined that Dochow had played a key role in the collapse of Lincoln Savings and Loan by delaying and obstructing proper oversight.
In the aftermath of the Keating scandal, Dochow was demoted to serve in the Office of Thrift Supervision's Seattle branch — the same site he'd apparently offered up as a potential safe regulatory harbor for Lincoln Savings. Over the years, he again rose within the ranks of federal banking regulators.
According to a story in the Washington Post, by the mid-2000s, Dochow again became active in helping banks shop for regulators to their liking. In 2006, he met with executives of Countrywide Financial as they sought to move out from the supervision of the Office of the Comptroller of the Currency, which regulates commercial banks that operate nationwide. According to the Post's sources, the OTS pitched itself as a less antagonistic regulator.
In September 2007, Dochow was promoted to head the agency's West Region, just as the latest banking crisis was escalating.
Newsom, for his part, watched the 2007 wave of defaults from the sidelines, itching to join the hunt.
He talked with old friends at the FDIC, who urged him to get a job training investigators to dig into rotten banks. He didn't get hired — recruiters disqualified him, citing a rule that required new hires to have experience within the previous five years. Newsom says he's conducting freedom of information requests of the FDIC about its bank examination practices, and is considering filing a class-action lawsuit claiming applicants like himself were improperly excluded from consideration for jobs.
Absent a regulatory job, Newsom began digging on his own, provoked by Kathleen Pender's column that suggested IndyMac regulators were late to the game. It turned out IndyMac wasn't the only bank avoiding proper OTS scrutiny. Countrywide's ever-worsening balance sheet now threatens the survival of Bank of America, which purchased it and bailed it out last year. Countrywide, too, should have been on a list of OTS problem banks, yet wasn't, Newsom said.
By early 2008, IndyMac took huge losses on its loan portfolio as defaults surged. Instead of flagging the bank as a problem, Dochow and his department allowed deposits to grow from less than $9 billion in mid-2007 to $16 billion by March 2008.
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