1923 - 2014

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Charles Keating has become the face of the collapse of the savings and loan industry in the late 1980s and the resulting recession in 1990-91. He has come to represent the "greed is good" financial ethos of the 1980s.

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A Navy veteran and lawyer, Keating joined the insurance giant American Financial Corporation in 1972, and seven years later, the Securities & Exchange Commission charged him with defrauding stockholders for $14 million. He paid a fine but maintained his innocence. After Keating acquired Lincoln Savings & Loan in 1984, the bank’s assets increased dramatically from $1 billion to $5 billion. Those gains were fake.

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Like most banks, Lincoln S&L’s deposits were federally insured (FDIC), and Keating invested those funds in junk bonds (essentially high yielding loans with a high change of default). When federal authorities began to investigate Lincoln S&L in the mid-1980s, Keating solicited the support of five U.S. senators whom he had supported with significant donations. Despite the early interference, federal regulators in 1989 took control of Lincoln S&L, which by then had become insolvent. This left the federal government on the hook to cover $3 billion in losses, and the larger savings and loan crisis of the era cost U.S. taxpayers $124 billion and spurred the recession of 1991-91. Keating did not alone cause the crisis, but he became the face of it.

 

The crisis was a slow-moving disaster that began when a real-estate lending bubble deflated throughout the 1980s. This deflation was exacerbated by excessive lending, speculation, and risk-taking driven by federal deregulation and taxpayer bailout guarantees. Outright fraud was sometimes ignored. By the time the recession began, more than 1,000 banks, many local, had closed for good.

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Keating was convicted on state and federal charges of fraud, racketeering, and conspiracy. He was sentenced to 10 years in prison in 1991. He was convicted again two years later, and two additional years were added to his sentence. He was fined $156 million, and the government seized his mansion. His convictions were later overturned on various technical grounds. He pleaded guilty in 1999 to wire and bankruptcy fraud but was not imprisoned. He lived his final years with his family in Phoenix, brokering successful (legitimate) deals in real estate development. He kept a low profile and offered no public statement during John McCain's 2008 presidential campaign. He died in 2008.

 

Keating once joked that he had “bribed” the “Keating Five,” those five senators who interfered in the early federal investigation. Alan Cranston, Dennis DeConcini, John Glenn, John McCain, and Donald Riegle were investigated by the Senate, and their involvement ended or tarred the careers of the senators. Only Cranston, who served as a sort of ringleader of the group and who had received the most money from Keating, was the only senator to receive an official reprimand from the Senate. The others were criticized for poor judgment.