BloggingStocks

Financial Felons: Charles Keating

Posted Nov 22nd 2008 6:10PM by Michael RaineyMichael Rainey RSS Feed
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

Print this

Reader Comments (Page 1 of 1)

Page Loaded in 1329103096465 ms.