Precedents

July 8, 1993

Keating Gets Federal Jail Term

Posted Jul 1, 2010 12:40 AM CDT
By George Hodak

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Photo by Terry Ashe/Time Life Pictures/Getty Images

When Charles Keating’s California-based Lincoln Savings and Loan finally collapsed in 1989, it became the most visible and costly casualty of a financial crisis that gripped the nation for a decade. A series of deregulatory measures, capped by the Garn-St. Germain Act of 1982, had sought to revive the ailing thrift industry by allowing S&Ls to move away from traditional home lending and pursue more commercial loans.

At first the strategy appeared to work, but by early 1984 a new pattern was emerging—one marked by profligate lending and massive fraud. Federal efforts to rein in rogue thrifts were met with resistance and ridicule. To head off proposed re-regulation, Keating enlisted the support of powerful politicians and heavyweights like Alan Greenspan.

As Lincoln’s loans and investments soured, however, bank examiners uncovered sham transactions, diverted funds and a massive junk bond scheme targeting elderly depositors. Keating was convicted—first of fraud in California state court, then of racketeering in federal court—his name forever linked to an S&L crisis that left taxpayers on the hook for $125 billion.

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