Keating: Cold Comfort, and a Warning
The name Charles H. Keating Jr. should live on to warn against Main Street spinning out of control the way Wall Street did in the 1980s. Because in the 1990s, the wheeling and dealing crashed with a vengeance on Keating--and, unfortunately, on the rest of the nation.
The Phoenix financier and speculator was convicted by a Los Angeles jury Wednesday of state securities fraud in the sale of $250 million worth of junk bonds at his Orange County-based Lincoln Savings & Loan.
That will be cold comfort to investors who lost their life savings when his bubble burst. Taxpayers have spent $80 billion to pay off depositors in hundreds of thrift companies that collapsed under the dead weight of greed and mismanagement. The collapse of Keating’s savings institution alone will account for $2.6 billion.
Nor is Keating’s conviction likely to cheer Sen. Alan Cranston (D-Calif.), whose career is a shambles because he took big campaign contributions from Keating in return for putting in a good word for him with federal regulators.
Besides the speculative fever that raged during the ‘80s, one thing the Keating case had in common with many failures of thrifts was new loose federal regulations that made so many of the S&Ls; look like fast-buck joints for hustlers.
The jury found Keating guilty of 17 of 18 counts of fraud. It could all be traced back to 1984 when he bought Lincoln Savings and began using the new rules that made it possible for thrifts to get into new lines of business. He poured billions of dollars of the savings company’s money into land, junk bonds and other investments that had been barred to thrifts before deregulation.
The heart of the prosecution case against him was that he sold junk bonds in American Continental Corp., his Arizona home-building firm through which he bought Lincoln, without telling investors that federal regulators had concluded that his empire was in trouble.
Everything collapsed in 1989. Then, there was no warning for investors. Let this sorry financial debacle be a warning for the future.
