Some have asked if there wasn’t also a lot of fraud behind the collapse of S&Ls. Many allegations were that they squandered money buying expensive art, etc. They did not tell the public that the art more than doubled in value. Take the prosecution of the poster boy Charles Keating (1923– 2014). A Federal judge overturned the California state court conviction of Keating, ruling that jury instructions by the judge in the state court, Lance A. Ito, had been flawed.
The prosecution of Keating centered on the outrageous claim that he issued bonds, knowing that he would ultimately fail. NEVER in my decades of dealing with people and institutions have I ever encountered someone with legitimate company-issued bonds, knowing that would be an S&L crisis years later. Keating’s prosecution was simply legal persecution so that the government could blame the private sector, not Congress, which changed all regulations.
There was the Keating Five, who were US Senators accused of corruption in 1989 for intervening in Keating’s case. This was spun into a major political scandal involving Senator Alan Cranston (Democrat of California), Senator Dennis DeConcini (Democrat of Arizona), Senator John Glenn (Democrat of Ohio), Senator John McCain (Republican of Arizona), and Senator Donald W. Riegle, Jr. (Democrat of Michigan). This was an investigation of Keating’s Lincoln Savings and Loan Association by the Federal Home Loan Bank Board (FHLBB), which then backed off taking action against Lincoln.
Eventually, the fraud that Keating was charged with in his Lincoln Savings and Loan collapse of 1989 cost the government $3.4 billion. The bondholders amounted to 23,000, and the government claimed they were defrauded because Keating knew he would eventually fail. The substantial political contributions Keating had made to each of the senators, totaling $1.3 million, attracted considerable public and media attention at the time.
Finally, after a very lengthy investigation, the Senate Ethics Committee determined in 1991 that Cranston, DeConcini, and Riegle had all improperly interfered with the FHLBB’s investigation of Lincoln Savings. Cranston received a formal reprimand. Senators John Glenn and John McCain were cleared of having acted improperly. Nonetheless, they were criticized for having exercised “poor judgment,” whereas anyone else would have been charged with conspiracy to obstruct justice.
All five senators eventually completed their terms of office. Both John Glenn and John McCain ran for re-election and won. McCain later even ran for President, but thank God he lost.
Anyone who looks closely at the conviction of Keating is confronted with the plain fact that this was a political prosecution to provide the cover for Congress in this attempt to shift all the blame to the private sector portraying the owners of these S&Ls as greedy rich people seeking to make money.