Financial Felons: Charles Keating

Posted Nov 22nd 2008 6:10PM by Michael Rainey
Filed under: Law, Scandals, Politics, Financial Crisis

This post is part of a feature in which he wonder whatever happened to some notorious financial felons. See all 17.

I thought we'd have heard more about Charles Keating over the last few weeks of the 2008 presidential election, but much to my surprise the Obama campaign refrained from mentioning him. Keating was once the chairman of the Lincoln Savings and Loan Association, the infamous bank at the center of the S&L scandal of the 1980s; that scandal featured none other than John McCain, one of the "Keating Five" group of disgraced senators and more recently the Republican Party's nominee for president. But McCain's connection to Keating didn't seem to play a role in the 2008 election, and McCain lost the race for reasons other than being connected to one of the great financial crooks in recent memory.

To be fair, Keating was not a big fan of John McCain. He reportedly called him a "wimp" behind his back, accusing him of lacking the courage to fight the regulators who sought to reign in Keating's bank. McCain, along with John Glenn, were cleared by the Senate Ethics Committee of impropriety in their relationship with Keating, though they were publicly criticized for exercising "poor judgment." McCain later said that trying to help Keating was "the worst mistake of my life," though he didn't seem too upset about riding around the Caribbean on Keating's private jet.

So what was Keating up to? Sadly, it will sound pretty familiar. In the early 1980s, savings and loan associations were deregulated, and aggressive investors like Keating jumped in and used S&Ls to bankroll a whole range of high-yield investments, including real estate development and junk bonds. Many of the investments were pretty sketchy and resulted in the banks drowning in oceans of bad debt. Eventually, 700 S&Ls went belly up, at a cost of over $120 billion; Lincoln collapsed in 1989, costing the taxpayers roughly $3 billion.

Among other things, Keating was accused of defrauding thousands of mostly elderly investors, tricking them into buying bonds in his parent company, American Continental Corporation. Those bonds promised high-yield returns but ultimately were no-yield, as American Continental declared bankruptcy in 1989. Lincoln was seized, and Keating quickly became the poster boy for the S&L scandal. He famously refused to testify before Congress, taking the fifth to avoid self-incrimination. Keating was brought to trial on racketeering charges and was sentenced to 12 and a half years and fined $122 million. He served over four years before his conviction was overturned. He eventually pled guilty to lesser charges and was sentenced to time already served. All along, Keating maintained his innocence, claiming that he was a political prisoner and blaming the regulators for bringing down his banking empire.

In many ways, the S&L scandal was a precursor to our current financial crisis. A daffy Republican president (Reagan), operating under the ideology of an intellectual guru (Alan Greenspan both times), gave his blessings to new financial practices as legislators turned many a blind eye (McCain both times, among many others). And like many financiers today, Keating never accepted that he was wrong in any way. I guess a certain kind of arrogance is a requirement for being a crook on a grand scale.

Keating has kept a low profile lately but has not been completely inactive. He has been involved in real estate development in Phoenix in the past few years -- an interesting fact given the massive bubble and now collapse in that market.

More admirably, Keating has supported his grandson's swimming career; five time Olympic gold medal winner Gary Hall Jr. is Keating's grandson, following in the old man's footsteps. Long ago, before becoming a notorious felon, Keating was an all-American swimmer at the University of Cincinnati.

Tags: Alan Greenspan, American Continental, Charles Keating, featured, financial felons, Gary Hall Jr., John Glenn, John McCain, junk bonds, Keating Five, Lincoln Savings, savings and loan scandal

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Reader Comments (Page 1 of 1)

11-19-2008 @ 7:32AM

John Wharton said...

"daffy American President Ronald Reagan"
Who is writing this piece? And who is editing this article? President Reagan pulled the US out of the mire left by Jimmy Carter and ended the Cold War with Russia.
This author should be so "daffy".
Is it a possible extreme liberal bias showing?

11-19-2008 @ 11:41AM

John said...

"A daffy Republican president (Reagan)"???
This author glorifies George Soros and calls Reagan daffy. Great non-biased reporting. I have to assume the rest of the piece has an extreme leftist slant and therefore I'd need to get the straight story elsewhere. All credibility instantly lost.

11-20-2008 @ 3:14AM

mB said...

Why isn't Neal Bush listed for his part in the Silverado Savings&Loan scandals? Oh, that's right. He merely got a fine that the GOP paid....even though he was guilty of fraud .

11-23-2008 @ 8:58AM

john said...

With Liberal Carter policies, the inflation rate was double digits and interest rates were in the 20 percent. The New Deal regulations made distinctions between S&Ls and Banks---and S&Ls could not compete with Banks because of the high rates and were losing depositors. So it was deregulated so that they could compete with Banks--and then guess what happens-----you got it---excess. So typical. If the inflation/interest rate had no gotten out of hand, the S&L's would not have had the politics or necessity to have them deregulated.

Same as in our current crises: Liberal policies aimed at getting noncredit worthy people into homes became excess after 9/11 with much to low interest rates plus Liberal policies at Freddie and Fannie that bought these subprime mortgages. It was foreseeable--and it was---but excess always wins out.

Ciao.

11-22-2008 @ 9:27PM

john said...

ever notice it was the repukes at the helm for both the S&L crisis in the 80s and now the banking crisis? stupid republicans

11-22-2008 @ 9:47PM

norman said...

stupid republicans! STUPID REPUBLICANS! where can i be stupid and give a trillion dollars to my buddies!!!! and it was a stupid democrat (clinton) that signed a repeal of glass-steagel presented by a democratic congress ...

VOTE THIRD PARTY

11-22-2008 @ 11:45PM

Lee Jamieson said...

"A daffy Republican president (Reagan)?"
Is this a news article? I won't waste my time reading one more word.

11-23-2008 @ 12:32PM

G J Miller said...

Republicans are not stupid-But they sure feel they are suprior. They always blame Liberials for problems they create. Most republicans are out of touch with reality, and are sociciopaths. This is quite obvious because they can never accept responsibility for thier actions. For some strange reason they believe God is on thier side. In my opinion republicans feel there are loopholes with the creator to justify thier actions. I do not believe that there are loopholes in your relationship with God. Just because the US Government has loopholes in the tax code to help the wealthy I do not think there are loopholes for your behavior in this life and will have to account when life is over. Lets ask the tough question; If Jesus were alive today, would he be a republican, that is self serving , or would he be a liberal, that wants to have everyone on the same level? I think if Jesus had to choose, he would be a liberal Democrat.

11-23-2008 @ 9:02AM

John said...

Jesus said there is an absolute moral authority that is not relative----and that is where liberal democrats and Jesus divert as liberal democrats believe that morality is relative and internal to one's own self with no absolute moral guide.

11-23-2008 @ 9:53AM

BHarrison said...

Well, doesn't this demonstrate how far back all of this corruption goes back to . . . and how much Congress had colluded in the coverups because of their complicity in all of these major financial scandals.

All of this finally escalated into our recent economic melt down . . . When will the American people realize that the ONLY solution is to purge the RNC and the Dnc, and both houses of Congress of the old CORRUPT Congressmen.

11-23-2008 @ 11:16AM

JCH said...

Daffy?

Sounds about right to me. As the current Secretary of Defense wrote in his book, it was apparent by Ronald Reagan's second term that he was suffering from debilitating senility.

Paul Volcker pulled America out of its inflationary spiral and restored economic growth. President James Earl Carter sought out and nominated Paul Volcker to be the Chairman of the Federal Reserve.

Ronald Reagan, with half of his brain rotted away, replaced Volcker with a moron named Greenspan.

Enjoy the Reagan's last gift: the current depression.