Quick cash loan

What has once happened, will invariably happen again, when the same circumstances which combined to produce it, shall again combine in the same way"

ABRAHAM LINCOLN

"Greed is healthy"

IVAN BOESKY

Last October, as the O.J. Simpson saga roared into its 2000th irritating hour and the Whitewater hearings cost taxpayers yet another ten-grand, an equally significant event quietly took place in the American justice system: Charles H. Keating Jr. was released from jail.

You remember Charlie, the poster boy of the savings and loan catastrophe of the 1980s. Well, despite his role in the regrettable disappearance of $2.5 billion in taxpayer-insured funds, Keating was released on October 3, following a court ruling that jurors at his 1993 federal trial had been inappropriately influenced by their knowledge of Keating's conviction in California state court. Keating's state convictions had been overturned in April, because his trial judge, the now notorious Lance Ito, had given improper instructions to the jury. Then on December 2, the remainder of his criminal convictions were thrown out by a federal district court in Los Angeles. The U.S. attorney's office is still deciding whether to retry the case.

But why revisit the Keating story now? Seven years have passed since his Lincoln Savings and Loan became the symbol of an industry gone mad. Whole reams of newsprint described his doings and his sins, and his face appeared so often on the nightly news that it was imprinted on the collective consciousness of the nation. The case is closed, the story is over, and Charlie Keating is ancient history.

Well, not quite.

By a curious paradox commonplace in financial crimes, only a fraction of Keating's antics--not including his intimate connection with Michael Milken, another emblematic felon of the Decade of Greed--made it into the spotlight. Reporters concentrated on his lavish lifestyle, the fact that he tried to buy the Phoenix City Council, and that he was able to get one of his associates appointed to the Home Loan Bank Board, the federal agency that monitored his activities and had the power to stop him cold. (This was likened, correctly, to John Gotti getting one of his sidekicks appointed deputy director of the FBI.) It was also noted that he knowingly sold millions of dollars worth of valueless securities to thousands of people; erected a pyramid to himself in the Arizona desert in the form of a ridiculously extravagant hotel; and somehow managed to mislay $2.5 billion of the taxpayers' money. But much of what he did was never reported.

There are a number of reasons for this. Most reporters have to make sense of something by six o'clock in the evening, and major financial crimes such as Keating's involve the sort of mind-numbingly tedious, specialized analysis that most reporters, their other virtues aside, are not trained to do. In addition, complex financial crimes take days and weeks to explain in court, using language heavily freighted with obscure terms. Even then, there is no guarantee that a judge and jury will understand; therefore, prosecutors usually base their cases on the simplest and most comprehensible of the criminal's misdeeds--in Keating's case, robbing widows and orphans. As a result, the greater crimes are almost never revealed, and their larger meaning remains unknown. True to form, Keating and Milken's greater misdeeds never saw the light of day. So why revisit them now, aside from the fun in revealing an old but untold story--and, of course, the entertainment value of Charlie Keating?

The answer is both simple and urgent: deregulation. While Congress's drive to free industry from the clutches of big government may not be quite as maniacal as before last November's elections, the urge is still deeply rooted in the soul of the GOP--which, if you'll recall, remains firmly in control of both houses. And with the banking industry at the forefront of those clamoring to be freed from their regulatory shackles, the nightmare of the S&L years could easily happen all over again. As a result, now may indeed be the perfect time to explore the full magnificence of Keating's big adventure--keeping in mind, of course, that the next financial disaster, if it comes, will be infinitely greater.

Free Rein

In 1982, flying in the face of everything known about banks, bankers, and human nature when they are placed in the vicinity of a huge sum of money, Congress passed the Garn-St. Germain Act. This deregulated the nation's thrift industry and threw wide the doors of the S&Ls to anyone with a plausible story, a fistful of cash, and a visible desire to start doing all sorts of wonderful and imaginative things with the taxpayer-insured deposits.

The passage of Garn-St. Germain found Keating at loose ends. The home-building business he then headed was not in terrific shape, and although President Reagan had tried to appoint him ambassador to the Bahamas--which would probably have saved everybody a tremendous amount of trouble--the appointment fell through when members of the Senate discovered that in 1979, the Securities and Exchange Commission had filed a complaint against Keating and his then-mentor, Ohio billionaire and big-time political donor Carl Lindner, for allegedly violating anti-fraud, disclosure, and proxy provisions. (Lindner eventually settled with the SEC for $1.4 million.) But Garn-St. Germain, Keating was quick to realize, changed everything. True, he didn't have enough money to buy an S&L suitable to his purposes, but he knew Michael Milken. In turn, Milken and his brokerage firm, Drexel Burnham Lambert, were looking for funds to create their dreamed-of junk bond network. It was a meeting of minds.

The trick, Keating came to realize under the guidance of Milken, was not to find just any old S&L, but a particular kind of S&L. Garn-St. Germain had dramatically increased the powers of the thrifts and dramatically reduced the powers of the federal watchdogs, but the states still had their own regulations. By a happy chance, however, California had just passed a new law allowing the owner of a thrift to invest 100 percent of his federally insured deposits in anything, anything at all. Keating soon set his sights on a well-run southern California thrift named Lincoln Savings & Loan.

In 1983, Milken's Drexel underwrote a $125 million debt-offering for Keating's American Continental Corporation--an event largely overlooked by the press. It was, California Commissioner of Savings and Loans William Crawford later told the House Banking Committee, "window-dressing," meaning Drexel managed to give Keating's floundering ACC the appearance of ruddy good health and luminous solvency. Next, Drexel underwrote a $56 million preferred stock issue of ACC. Keating took $51 million of the money and bought Lincoln. In other words, Drexel bought Lincoln for Keating. Drexel also secretly purchased a substantial hunk of the thrift for itself. The firm reserved 10 percent of Lincoln's stock, a fact that Drexel and Keating tactfully failed to mention to regulators until 1985, when they revealed their relationship so quietly the regulators failed to notice it.

In buying Lincoln--where he never held an official position because, as he later blurted out to a Seattle regulator, he "didn't want to go to jail"--Keating committed a number of promises to writing. Among others, he pledged to retain Lincoln's experienced executives and to continue its slow, steady, unglamorous (and sound) policy of basing its business on home loans. Keating immediately did neither of these things. Lincoln all but suspended its home loan operation, and company officers were replaced by ACC staffers who were essentially devoid of banking experience. With his plan thus in place, Keating set about purchasing $2.7 billion in junk bonds, almost all of them (or at least the ones that regulators later inspected) from Drexel. And when examiners from the Federal Home Loan Bank of San Francisco, Lincoln's primary regulator, got around to taking a good look at Keating's notion of an S&L, they found a number of strange and alarming things about Lincoln's junk bonds.

"Lincoln's Investment Department," San Francisco wrote in its confidential examination report, "consisted of an executive vice president' an investment manager and two investment analysts.... Not one of these investment managers or analysts had worked for an investment banking firm. Not one of their resumes reflected pre-Lincoln experience in analyzing corporate debt or equity securities"

Even so, an inexperienced investment staff can quickly become knowledgeable as it performs the exhaustive, painstaking analysis of the companies and financial instruments that are candidates for the institution's investments. This research and analysis, considered essential by virtually all investment houses, is called "due diligence" Lincoln performed no due diligence.