Charles Keating's Techniques Were Replicated by Those Who Helped Trigger the 2008 Financial Collapse
Charles H Keating Jr. is remembered not only as the most notorious figure of the savings & loan crisis that swept the nation in the late 1980s - and as the namesake of the infamous Keating Five political scandal - but also as the fraudster whose techniques were replicated by those who helped trigger the 2008 financial collapse and Great Recession.
Dennis Brack/Newscom Charles Keating Jr. at a House of Representatives hearing on the Lincoln Federal Savings and Loan scandal.
Keating, who pleaded guilty to federal bankruptcy-fraud charges in 1999 after earlier state and federal criminal convictions were overturned on appeal, died March 31 at age 90. He served four years in a Tucson federal prison, where he (a competitive swimmer himself in his youth) watched on television as his grandson, Gary Hall Jr., won Olympic gold swimming metals during the 1996 Atlanta Games.
"Keating was the test pilot, the guy who blazed the trail" for the crooked businessmen that fueled the financial crisis that crashed the world economy following the collapse of Lehman Brothers in 2008, says William Black, a former federal S&L regulator and now associate professor of economics and law at the University of Missouri-Kansas City.
"It was easy for folks who came after him," Black says. "They didn't have to invent the playbook.
"Had we learned the right lessons from dealing with the Keatings of the world and the Savings & Loan debacle, there certainly would not have been the great financial crisis that were suffering from now," Black says.
Black had a ringside seat to Keating's influence-peddling when he attended a 1987 meeting with Ed Gray, former chairman of the Federal Home Loan Bank Board, and five U.S. Senators at Keating's behest. Alan Greenspan, who was one of Keating's army of powerful advocates and who later became chairman of the Federal Reserve Board, arranged the unusual meeting, Black says.
Gray later told me when I worked at the Dayton Daily News in Ohio that he believed the senators pressured him to subvert a regulatory rule that Keating opposed. Keating owned Irvine, Califiornia-based Lincoln Savings & Loan. Gray resisted the pressure, but he was soon replaced with a regulator who was more accommodating to Keating's demands.
Among the five senators attending the meeting with Gray were two from Arizona: Democrat Dennis DeConcini and Republican John McCain. The other three senators were all Democrats Don Riegle of Michigan, John Glenn of Ohio, and Alan Cranston of California.
Gray's allegation that the senators worked on behalf of their "friend" Keating to weaken a regulation designed to protect taxpayers was first reported in the Daily News. The story eventually led to a major investigation by the Senate Ethics Committee, and televised hearings on the probe became the showcase for the S&L debacle that cost American taxpayers more than $150 billion to cover thrift losses.
The Ethics Committee determined in 1991 that the five senators violated no laws. The committee however, "rebuked" Cranston, DeConcini, and Riegle for interfering with an ongoing bank board investigation Lincoln. The Committee criticized Glenn and McCain for exercising "poor judgment."