Charles Keating and the Keating Five: The Lincoln Savings Collapse

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The Keating Five scandal grew out of the savings and loan crisis of the 1980s, when deregulated thrifts gambled federally insured deposits; 747 failed, at a cost of about $160 billion, roughly $124 billion borne by taxpayers. In 1984 Charles Keating's American Continental bought Lincoln Savings and Loan of Irvine, California, and its assets grew from $1.1 billion to $5.5 billion in four years. When Federal Home Loan Bank Board chairman Edwin Gray capped direct investments at 10 percent, Lincoln was about $600 million over. Keating hired economist Alan Greenspan for a supportive study and spread money among five senators: Alan Cranston, Dennis DeConcini, John McCain, Donald Riegle, and John Glenn.

On April 2, 1987, four of the senators met Gray in DeConcini's office, and on April 9 all five met San Francisco regulators for two hours, only to learn Lincoln was being referred for criminal investigation. McCain cut ties, while the others kept helping. Gray's successor, M. Danny Wall, stalled action until April 1989, as Lincoln tellers steered customers from insured deposits into uninsured American Continental bonds that left about 23,000 people holding worthless paper. After 22 months and live hearings, the Senate Ethics Committee reprimanded Cranston in 1991, criticized DeConcini and Riegle, and faulted Glenn and McCain for poor judgment. Keating went to prison for fraud.

• Keating steered $850,000 to voter registration groups tied to Cranston plus $85,000 to the California Democratic Party.
• McCain and his family took nine trips at Keating's expense, three to his Bahamas retreat, and repaid about $13,000 years later.
• Glenn told the regulators to either charge Lincoln with a crime or get off its back.
• FDIC chairman L. William Seidman called the bond switch one of the most heartless and cruel frauds in modern memory.
• Special counsel Robert S. Bennett recommended dropping Glenn and McCain, but the committee kept all five under review.